Agglomeration and Growth Effects of Trade Liberalization.

This paper develops a growth model with two countries, where researchers use formerly developed intermediate goods as inputs. It is found that trade liberalization in these goods speeds up the growth rate if trade costs initially are small and we allow internatinal wages to differ. On the other hand, there is possibly no relationhip between growth and trade liberalization for higher levels of trade costs. The reason is that agglomeration forces then may have led the entire reserach sector to concentrate into one country.