Dynamics, Economic Growth, and International Trade

1. Introduction

CHAPTER 1 Introduction Bjame s. Jensen and Kar-yiu Wong This volume presents the new contributions of a number of economists on dynamics, economic growth, and international trade. It includes one survey on endogenous growth and international trade and nine chapters that provide new analysis and new results about many important topics in this area. The chapters were written amidst the growing interest of economists in the sources and effects of economic growth. The recent development of endogenous growth literature has introduced many new approaches to analyzing economic growth. The interest in endogenous growth is sparked by some observations about the growth rates of different countries , and it has led to important analyses that suggest various new ways of investigating theoretical and empirical aspects of economic growth. It has been recognized that a substantial part of the recent growth literature focuses on closed and isolated economies, thus ignoring the common notion that trade is an engine of growth, and the fact that many countries showing impressive growth are open economies. Fortunately, this shortcoming of the literature is well understood, and many efforts have been made to analyze different issues related to the growth of open economies. The contributions to this volume attempt to go beyond the present literature by focusing on economies that are linked to each other through movements of goods or factors of production. They examine the relationship between accumulation of factors, technological progress, efficiency , economic growth, international trade in goods, international factor movement, income distribution, and welfare. New approaches to analyzing these issues are suggested, and new results are obtained. This book has three distinctive features: 1. A survey on endogenous growth and international trade gives the readers a critical review of recent developments in the literature of growth and trade. A unified model is developed to explain the main features of different models of endogenous growth and to show how they are related. Some results concerning the relationship between growth and trade are also explained. The possibility of convergence of growth rates of countries with or without international trade in goods or international factor mobility is discussed. 4 Dynamics, Economic Growth, and International 'frade 2. Some of the chapters in this volume analyze some "traditional" issues in a new context. For example, the possibility of diversification and sustained growth in the neoclassical framework with different rules of saving and with or without endogenous population/labor growth is investigated, and the patterns of trade with overlapping generations or human capital accumulation are derived. 3. Other chapters of the volume examine some newer issues, such as the relationship between the accumulation of different types of capital in growing economies, the interdependence between growth and international factor movement, and the dynamics of international factor movement. Furthermore, one of the chapters measures the changes in technological progress and efficiency of many countries , and another suggests a new theory of growth based on trade and technology transfer through learning by doing. There are five parts in this volume. Part I contains this introduction (chapter 1) and a survey on endogenous growth and international trade (chapter 2). This survey, by Long and Wong, provides a systematic examination and presentation of major developments in the theory of endogenous growth and the relationship between economic growth and international trade. Those readers who find the present literature voluminous , confusing, and difficult to follow would find this survey helpful in sorting out different approaches to endogenizing economic growth of closed and open economies. The survey is divided into two major sections. The first covers the theory of endogenous growth for closed economies. Using a unified framework , which reduces to several models of endogenous growth in special cases, it discusses several important factors of growth that have been proposed in the literature. It emphasizes the major features of each theory and shows how it is different from the neoclassical theory of growth. Growth due to human capital accumulation or R&D activities is thoroughly discussed. While the majority of articles on endogenous growth focuses exclusively on closed economies, there has been a growing interest in the growth of open economies linked to each other through movement of goods, factors, and/or knowledge. The second section of the survey covers the major works in the literature on growth and trade. Some of the models are direct extensions of those for closed economies, but some are new. It is shown that trade has an important impact on growth, and with open economies, many new issues arise. However, many of the results...