Economic growth with trade in factors of production

Abstract

We study the world trading equilibrium in a Ricardian model, where factors of production are produced and traded. Even in the absence of technology transfer, international investment, research and development, and aggregate scale effects, trade affects economic growth through comparative advantage. Trade may raise the growth rate or leave it unchanged, depending on the patterns of comparative and absolute advantage. Trade in factors of production can effectively equalize technology even when technology transfer does not occur. Factor price equalization may hold, but the Stolper-Samuelson and Rybczynski theorems do not. The transition dynamics can be monotonic or oscillatory. © (2014) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.