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Discussion Paper Details

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Title: Trade-induced Investment-led Growth

Author(s): Richard Baldwin and Elena Seghezza

Publication Date: June 1996

Keyword(s): Neoclassical Growth and Trade-induced Investment-led Growth, Trade and Growth

Programme Area(s): International Macroeconomics and International Trade and Regional Economics

Abstract: This paper presents five theoretical openness-and-growth links that can account for trade-induced investment-led growth. The links are all demonstrated with neoclassical growth models developed in the context of trade models that allow for imperfect competition and scale economies. This sort of old-growth-theory-in-a-new-trade model has not been thoroughly explored in the literature since the profession skipped from old-growth-old-trade models straight to new-growth-new-trade models. Nonetheless, such models are necessary to explain several key aspects of the econometric evidence on trade and growth. For example, cross-country data suggests that openness influences growth only via its effect on investment, and suggests that openness promotes investment in all countries whatever the capital-intensiveness of their exports (contrary to predictions of the old-growth-old-trade models).

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Bibliographic Reference

Baldwin, R and Seghezza, E. 1996. 'Trade-induced Investment-led Growth'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1420