International Trade and Economic Growth

This chapter presents an analysis of the relationship between economic growth and international trade — a topic which was introduced first by Hicks (1953). There are three agents of economic growth: capital accumulation, increase in labour supply and technological progress. Historically, economic growth has always been accompanied by invention and innovation of new products — a phenomenon which has only been recently captured in formal growth models. These are discused in Chapter 27. In the last chapter, we have separately analysed the consequences of changes in factor endowments and technological progress on the sectoral levels of output and the relative price in a closed economy. We will now consider a trading world and analyse the impact of economic growth on the volume of trade, the terms of trade and economic welfare.