Economic Integration and Endogenous Growth

In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolation, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. We consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector.

International Trade with Endogenous Technological Change

To explain why trade restrictions sometimes speed up worldwide growth and sometimes slow it down, we exploit an analogy with the theory of consumer behavior. substitution effects make demand curves slope down, but income effects can increase or decrease the slope, and can sometimes overwhelm the substitution effect. We decompose changes in the worldwide growth rate into two effects (integration and redundancy) that unambiguously slow down growth, and a third effect (allocation) that can either speed it up or slow it down. We study two types of trade restrictions to illustrate the use of this decomposition. The first is across the board restrictions on traded goods in an otherwise perfect market. The second is selective protection of knowledge-intensive goods in a world with imperfect intellectual property rights. In both examples, we show that for trade between similar regions such as Europe and North America, the first two effects dominate; starting from free trade, restrictions unambiguously reduce worldwide growth.

Abstracts from the 20th International Symposium on Signal Transduction at the Blood-Brain Barriers

https://deepblue.lib.umich.edu/bitstream/2027.42/138963/1/12987_2017_Article_71.pd

Economic Integration and Endogenous Growth.

In a world with two similar, developed economies, economic integration can cause a permanent increase in the worldwide rate of growth. Starting from a position of isolation, closer integration can be achieved by increasing trade in goods or by increasing flows of ideas. The authors consider two models with different specifications of the research and development sector that is the source of growth. Either form of integration can increase the long-run rate of growth if it encourages the worldwide exploitation of increasing returns to scale in the research and development sector. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.