Idea Flows, Economic Growth, and Trade

Fernando E. Alvarez, Francisco J. Buera, Robert E. Lucas, Jr.

NBER Working Paper No. 19667
Issued in November 2013
NBER Program(s):   EFG   ITI

We provide a theoretical description of a process that is capable of generating growth and income convergence among economies, and where freer trade has persistent, positive effects on productivity, beyond the standard efficiency gains due to reallocation effects. We add to a standard Ricardian model a theory of endogenous growth where the engine of growth is the flow of ideas. Ideas are assumed to diffuse by random meetings where people get new ideas by learning from the people they do business with or compete with. Trade then has a selection effect of putting domestic producers in contact with the most efficient foreign and domestic producers. We analyze the way that trade in goods, and impediments to it, affect this diffusion. We find that exclusion of a country from trade reduces productivity growth, with large long-term effects. Smaller trade costs have moderate effects on productivity.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Supplementary materials for this paper:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19667

Users who downloaded this paper also downloaded these:
Lucas and Moll w17495 Knowledge Growth and the Allocation of Time
Alvarez, Buera, and Lucas w14135 Models of Idea Flows
Lucas w14133 Ideas and Growth
Costinot, Donaldson, Vogel, and Werning w19689 Comparative Advantage and Optimal Trade Policy
Cosar and Fajgelbaum w19697 Internal Geography, International Trade, and Regional Specialization
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us