Endogenous Growth and Trade, Old and New

Abstract

In the traditional theory technical progress is exogenous, in the sense that technological improvements fall on the economy like manna from heaven. Technical progress, however, usually derives from activities directed at procuring it (for example R&D: Research and Development), hence it is normally endogenous. The theory of endogenous growth stresses the endogenous determination of technical progress, and drops the assumption of decreasing returns to capital. Hence from the point of view of the interrelations with international trade, endogenous growth is often associated with the ‘new’ trade theories, that usually take increasing returns and imperfect competition as their points of departure (see Chap. 7). However, endogenous growth can also be fitted in the context of the traditional theories of international trade. Both cases will be examined in the present chapter.