Innovation, Growth, and Dynamic Gains from Trade / Wen-Tai Hsu, Raymond G. Riezman, Ping Wang.

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Hsu, Wen-Tai

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w26470.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: How large are the welfare gains from trade? Would such gains be significantly amplified in the long run when productivity is endogenously enhanced? To address these questions, we focus on the dynamic effect of trade, in particular, how trade affects the incentives for technological advancement. We construct an innovation-based endogenous growth model of North-South trade. There are two types of innovation: one by the North to upgrade the general purpose technology (GPT) and another by all countries to advance entrepreneurial knowledge for developing differentiated products. We find sizable welfare gains from trade, about 5.3% when compared to autarky. The gains in our dynamic model are much higher than the static estimates where the effects of GPT-driven innovation are eliminated. The share of dynamic gains from trade is about 78% of the total gains in our benchmark economy - much higher than comparable figures identified in previous studies. Comparative statics indicate that GPT innovation efficacy, entrepreneurial talent distribution and trade elasticity are crucial for dynamic gains from trade.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w26470 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w26468 Trade Wars, Technology and Productivity /	nber w26469 Endogenous Leverage and Default in the Laboratory /	nber w2647 The Effects of Hours Constraints on Labor Supply Estimates /	nber w26470 Innovation, Growth, and Dynamic Gains from Trade /	nber w26471 Monetary Easing, Leveraged Payouts and Lack of Investment /	nber w26472 Does One Medicare Fit All? The Economics of Uniform Health Insurance Benefits /	nber w26473 A Theory of Economic Unions /	Next

November 2019.

How large are the welfare gains from trade? Would such gains be significantly amplified in the long run when productivity is endogenously enhanced? To address these questions, we focus on the dynamic effect of trade, in particular, how trade affects the incentives for technological advancement. We construct an innovation-based endogenous growth model of North-South trade. There are two types of innovation: one by the North to upgrade the general purpose technology (GPT) and another by all countries to advance entrepreneurial knowledge for developing differentiated products. We find sizable welfare gains from trade, about 5.3% when compared to autarky. The gains in our dynamic model are much higher than the static estimates where the effects of GPT-driven innovation are eliminated. The share of dynamic gains from trade is about 78% of the total gains in our benchmark economy - much higher than comparable figures identified in previous studies. Comparative statics indicate that GPT innovation efficacy, entrepreneurial talent distribution and trade elasticity are crucial for dynamic gains from trade.