Trade, Urbanization, and Growth

Abstract

This paper proposes a neoclassical growth model of a small open economy, connecting international trade to real GDP growth and structural transformation from agriculture to non-agriculture. The calibrated model generates 'growth miracles,' to which the contributors are learning by doing and accelerated structural transformation. Quantitative results show that effects from the latter with opening up international trade are quintessential in accounting for the explosive growth patterns observed in newly industrialized economies. Trade policies (such as tariffs), relative productivity between agriculture and non-agriculture, and the persistence of urbanization process jointly affect the growth after opening.