Terms of Trade, Economic Growth, and Trade Patterns: A Small Open-Economy Case
Author(s)
Kaneko, Akihiko
Abstract
By incorporating human capital accumulation into a dynamic trade model, we examine the relationship between the growth rate and the specialization pattern of a growing economy. We found that as long as its autarky price differs from the world price, a small open-economy eventually specializes completely. Furthermore, the impact of the terms of trade on the growth rate depends on the trade pattern. Specifically, if a country specializes in a capital commodity, the growth rate is unaffected by the terms of trade. If it specializes in a consumption commodity, its growth rate is significantly influenced by the terms of trade.
