| Abstract: |
In a general equilibrium product-cycle model, lower trade barriers in-crease
Southern purchasing power, which lifts long-run growth by increasing the
profit from innovation. In the short run, factors of production must be
reallocated inside firms, which lowers the opportunity cost of innovation,
generating an additional "trapped factor" effect. Starting from a baseline
OECD growth rate of 2% we find that trade integration with low-wage countries
in the decade around China's WTO accession could have increased long-run
growth to 2.4%. There is an additional short-run trapped factors effect,
raising growth to 2.7%. China accounts for about half of these growth
increases. |