An Eaton-Kortum Model of Trade and Growth

Author Name NAITO Takumi (Waseda University)
Creation Date/NO. September 2012 12-E-055
Research Project Economic Analysis of Technology in the Global Economy
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Revised: March 2015


We combine a multi-country, continuum-good Ricardian model of Eaton and Kortum (2002) with a multi-country AK model of Acemoglu and Ventura (2002) to examine how trade liberalization affects countries' growth rates and extensive margins of trade over time. Focusing on the three-country case, we obtain three main results. First, a permanent fall in any trade cost raises the balanced growth rate. Second, trade liberalization increases the liberalizing countries' long-run fractions of exported varieties to all destinations. Third, the long-run effects of trade liberalization are different from its short-run effects, which can reverse the welfare implications of the static Eaton-Kortum model.

Published: Naito, Takumi, 2017. "An Eaton-Kortum model of trade and growth," Canadian Journal of Economics, Vol. 50(2), pp. 456-480