Trade Exposure and the Dual-Drag-Growth Effect

This paper develops an endogenous growth model of knowledge accumulation as a function of trade exposure between high-technology-skilled-labor and low-technology-unskilled-labor products, and the R&D sector. Open economies grow permanently faster if trade specialization occurs in high-technology-skilled-labor activities. Conversely, economies trading intensively low-technology-unskilled-labor products suffer from a dual-drag-growth-effect. The size of the drag could be significantly large as to generate negative rates of growth of technology, i.e. the economy converges to the steady state from above. Trade policy promoting high-technology-skilled-labor trade while developing a domestic R&D sector, increases permanently long run growth above and beyond autarky levels