Honkapohja, Seppo: Complementarity, Growth and Trade
World Conference Econometric Society, 2000, Seattle

Seppo Honkapohja, University of Helsinki
Arja Turunen-Red, University of New Orleans
Complementarity, Growth and Trade
Session: C-3-10  Saturday 12 August 2000  by Honkapohja, Seppo
We consider an endogenous growth model, which includes international trade in capital goods. The model yields several distinct balanced growth solutions, which can be classified using stability under adaptive learning. Some of the equilibria can involve growth rates much higher (or lower) than others. The impact of international trade on the equilibria includes local (differential) effects and bifurcation (global) changes. If a favourable bifurcation occurs, equilibria associated with low growth disappear. This phenomenon suggests a possible explanation for observations in which active international trade by some countries seems to have been associated with with periods of exceptionally high growth. We show that equivalent bifurcation effects can be induced in autarky using domestic industry subsidies. However, such subsidization can be very costly.

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