Essays on international trade and endogenous growth

In this research we study the effect of trade on economic growth through comparative advantage where there is no scale effect, research and development, technology transfer or even foreign investment. First, we consider a 2 sector endogenous growth model in which two countries produce two goods using 2 types of reproducible factors of production with Cobb-Douglas type production functions. In present of free international trade in goods, countries would completely specialize in producing one good on the Balanced Growth Path (BGP). When the equilibrium price is an interior solution, both countries enjoy higher growth rates with trade. Next we use a more general form of production functions. In this section we show that the production patterns on the BGP will be of 2 types, depending on the relative price of the countries under autarky to the price after trade. We show the existence and uniqueness of a price at which both goods are being produced on the BGP. This price is the same as the price of the country under autarky. However at any price other than this unique price, the country will shut down the production of one sector. On the transition to the steady state complete specialization can also happen. Finally we consider a model where 2 goods are being produced, consumption and an investment, using only one type of capital. On the BGP, the country that specializes in consumption goods and imports capital can enjoy higher growth rate with trade. However for the other country that specializes in producing capital goods and so imports consumption good, the growth rate will remain unchanged. We test this implication using a large panel of 92 countries over the period of 1965-2000. We report IV estimates of the model using yearly data as well as GMM estimates of the model using non-overlapping five year averages. Our results imply that specializing in consumption goods affects the growth rates significantly positive.