TY  - JOUR
AU  - Rivera-Batiz,Luis A.
AU  - Romer,Paul M.
TI  - International Trade with Endogenous Technological Change
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3594
PY  - 1992
Y2  - January 1992
UR  - http://www.nber.org/papers/w3594
L1  - http://www.nber.org/papers/w3594.pdf
N1  - Author contact info:
Paul M. Romer
Stern School of Business
New York University
E-Mail: paul@paulromer.net
AB  - 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.
ER  -