Munich Personal RePEc Archive

Trade, Sectorial Reallocation, and Growth

Wang, Pengfei and Xie, Danyang (2014): Trade, Sectorial Reallocation, and Growth.

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Abstract

This paper introduces sectorial heterogeneity in TFPs in a growth model to generate new insights on trade, sectorial reallocation, and economic growth. The rate of overall economic growth in this model is a simple average of sectorial growth in a closed economy, but will depend on trade parameters in an open economy as openness to trade shifts resources toward fast-growing sectors. We find that the overall growth rate is unambiguously higher as the number of trading partners increases. These conclusions survive even after trade cost is introduced. Nevertheless, trade share and growth rate may not move in the same direction as trade liberalization is pursued or as the number of trading partners increases. This finding may explain why the existing empirical evidence concerning this relationship between growth and trade share remains inconclusive.

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