Theory and Empirics
Edited by Neri Salvadori, Pasquale Commendatore and Massimo Tamberi
5. Specialize rightly or decline * Alessia Lo Turco and Massimo Tamberi 5.1. INTRODUCTION This chapter addresses the long-run relation between trade specialization and growth in a cross-country empirical framework. The theoretical literature on both the supply and demand side suggests the relevance of the nature of the goods produced and exported to a country’s long-run growth success or decline. In the Keynesian tradition (Thirlwall, 1979), growth is driven by the income elasticities of exports and imports and cumulative causation forces. Thirlwall’s final growth equation (Thirlwall’s law) is: y 1 ⎛Y ⎞ ⎜ ⎟ y ⎝Y ⎠ (5.1) National growth y / y depends on world demand growth Y /Y , given the and which are thought to depend on export and import elasticities countries’ model of specialization.1 More recently, the static theory of international trade has evolved along interesting lines with models of endogenous growth (Romer, 1990; Grossman and Helpman, 1991; Lucas, 1988; Young, 1991) in which supplyside factors play a dominant role. Lucas (1988) proposes a model where sector-specific self-reinforcing learning-by-doing processes are at the core of his analysis: two final goods are produced according to a Ricardian production technology and the key assumption of the model refers to the accumulation of human capital h in sector s : hs hs s us (5.2) hs can be interpreted as the outcome of a learning-by-doing process: the growth of hs depends on the effort us and learning-by-doing is assumed to be sector-specific, as indicated by the parameter s . 125 126 Geography, structural change and economic development...
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