2015 Volume 18 Pages 43-67
This study builds a two-country, two-sector, non-scale growth model and investigates the relationship between trade patterns and the growth rate of per capita real consumption. Suppose that both countries have different population growth rates, that at least one country has a negative population growth rate, and that the home country has a comparative advantage in manufacturing at the initial point in time. Then, the following two patterns are sustainable in the long run: (1)the home country diversifies (i.e., produces both manufactured and agricultural goods), while the foreign country specializes in agriculture and (2)the home country specializes in agriculture, while the foreign country diversifies. By comparing the growth rate under autarky with that under free trade, we find that in the first case, the foreign country increases its growth rate by engaging in free trade, whereas the home country does so in the latter case.
JEL Classification: F10; F43; O11; O41