Long-Run Comparative Advantage and Transitional Dynamics after Free Trade in an Endogenous Growth Model

Abstract

This paper examines the determinants of long-run comparative advantage and analyzes transitional dynamics after free trade in an endogenous growth model. It shows that a country with favorable conditions for capital accumulation has a long-run comparative advantage in capital-intensive goods. Transitional dynamics shows that the growth rate of a more patient country tends to be higher while a less patient country experiences a slowdown in its output growth rate during the transition path. In this study, it is shown that an endogenous growth model with international trade can produce the three empirically observed facts in the rapidly growing East Asian countries: high savings rates, high growth rates, and a significant change in the trade pattern.