Trade, knowledge spillovers, and growth

Gene M. Grossman; Elhanan Helpman

doi:10.1016/0014-2921(91)90153-A

Trade, knowledge spillovers, and growth

Gene M. Grossman, Elhanan Helpman

Princeton School of Public and International Affairs

Princeton University

Research output: Contribution to journal › Article › peer-review

Abstract

Endogenous growth of trading countries has been studied with international knowledge spillovers. These spillovers have typically been assumed to take place automatically. We study the growth performance of a small country in which scientific and technological knowledge flows from abroad are related to its extent of foreign trade. In this environment trade generates an externality that coexists with the externality of domestic innovation. The latter leads to too little innovation. We show that policies that reduce the extent of international trade strengthen the undersupply of innovation. Consequently the economy grows too slow for both reasons. In fact, some trade promoting policies reduce the harmful effects of the innovation externality, they accelerate growth and raise national welfare.

Original language	American English
Pages (from-to)	517-526
Number of pages	10
Journal	European Economic Review
Volume	35
Issue number	2-3
DOIs	https://doi.org/10.1016/0014-2921(91)90153-A
State	Published - Apr 1991

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/0014-2921(91)90153-A

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AB - Endogenous growth of trading countries has been studied with international knowledge spillovers. These spillovers have typically been assumed to take place automatically. We study the growth performance of a small country in which scientific and technological knowledge flows from abroad are related to its extent of foreign trade. In this environment trade generates an externality that coexists with the externality of domestic innovation. The latter leads to too little innovation. We show that policies that reduce the extent of international trade strengthen the undersupply of innovation. Consequently the economy grows too slow for both reasons. In fact, some trade promoting policies reduce the harmful effects of the innovation externality, they accelerate growth and raise national welfare.

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Trade, knowledge spillovers, and growth

Abstract

ASJC Scopus subject areas

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