Chapter 7: Growth and Trade
McGraw-Hill/Irwin
Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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1.Introduction
 Objective
To understand the relationship
between economic growth and
international trade, in particular,
the effects of growth on trade
and welfare.
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Introduction

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Contents
Sources of economic growth
Balanced versus Biased growth
Rybczynski Theorem and Dutch
Disease
Immiserizing growth
Effects of trade on growth
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2.Sources of growth
 Definition of economic growth
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Increase in productive capabilities
Growth in Gross Domestic Products
(GDP) (constant price)
Expansion of PPC
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Expansion of PPC
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 Sources of growth
Increases in factor resources
 labor resources
 Capital
 Land
 Improvement in production
technologies

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 Sources of growth and PPC
Increase in labor
resources
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 Sources of growth and PPC
Technical progress
in wheat
production
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3.Balanced vs Biased Growth
均衡增长与偏向性增长
 Balanced growth
 Concept
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 Sources of Balanced Growth
 Increases in all factors of
production at the same rate
 Technical progress of the
same magnitude in both
industries
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 Effects of Balanced Growth
(under constant relative price)
 Production
 Consumption
 Trade
 Welfare
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40% growth
Terms of trade=
1 yard for 1 bushel
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 Biased Growth
偏向性增长
 The concept
Economic growth biased
toward production of one
product
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 Sources of Biased Growth
 Increases of factors of
production at different rates
 Technical progress of different
magnitudes in two industries
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 Effects of Biased Growth
(under constant relative price)
 Production
 Consumption
 Trade
 Welfare
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Relative price:
1 yard for 1
bushel
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4 Growth in Only One Factor
要素增长
单一
In the 2x2x2 model, assuming
relative price is constant, what
changes will happen to production
with growth in only one factor ?
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Growth in labor resources
in the USA
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 Rybczynski Theorem
罗勃津斯基定理
Under constant prices, growth in a
country’s endowment of one
factor will result in both an
increase in the output of the
product that uses the growing
factor intensively and a decrease
in the output of the other product.
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Tadeus Rybczynski
罗勃津斯基
(1923-1998)
 Polish-born English economist
 Known for Rybczynski theorem
(1955)
 Studied at the London School of
Economics.
 Investment banker with Lazard
（瑞德）
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 The Dutch Disease
“荷兰病”
Discoveries of vast natural
gas deposits in the North
Sea in the 1960s resulted
in deindustrialization of
the Dutch manufacturing
industries.
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5 Effects on the Country’s Terms of
Trade

Small country

Large country
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 Effects of Growth on a Large
Country
 Reduced willingness to
trade and improvement in
terms of trade
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Effects of Growth on a Large
Country
 Increased willingness to
trade and deterioration in
terms of trade
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 Immiserizing Growth
贫困化增长
Jagdish Bhagwati
巴格沃蒂(1958)
Columbia University
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 Conditions for immiserizing growth
to occur
 Growth is strongly biased toward
expanding export supply and affects
world price.
 Foreign demand is price inelastic.
 The country is heavily engaged in
trade so that terms of trade loss can
offset production gains.
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6 Openness to Trade Affects
Growh
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Access to better technology
(Capital goods)
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Competitive pressure and
incentive to innovate
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 Summary
 Sources of growth
 Balanced vs biased growth
 Rybczynski Theorem
 Immiserizing growth
 Trade and growth
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