Trade, development and converging growth rates - Dynamic gains from trade reconsidered

Within an endogenous growth framework, we examine dynamic gains from trade for parametrically distinct countries. In the absence of international spil lovers or factor mobility, previous endogenous growth models generally impl y that trade in goods must amplify differences in (1) factor endowments, (2 ) rates of technical change and (3) economic growth. Even the dynamic HOS m odel suggests that trade intensifies differences in endogenous factor endow ments. In contrast, we present a model where trade in goods alone is suffic ient to reduce differences in rates of growth, technological change and fac tor endowments between leader and laggard economies. The key to the reducti on in the gap in growth rates is that both human capital and technological change are not just endogenous, but that their respective costs of accumula tion interact. Since skilled and unskilled labor is endogenous, we can also derive implications for cross-country relative wage movements. (C) 1999 El sevier Science B.V. All rights reserved.