Learning by Doing and the Dynamic Effects of International Trade

Abstract

Using an endogenous growth model in which learning by doing, although bounded in each good, exhibits spillovers across goods, this paper investigates the dynamic effects of international trade. Examining the interaction of an LDC and a DC, the latter distinguished by a higher initial level of knowledge, I find that under free trade the LDC (DC) experiences rates of technical progress and GDP growth less than or equal (greater than or equal) to those enjoyed under autarky. Since both countries enjoy the usual static gains from trade, free trade may, nevertheless, improve the welfare of LDC consumers.