Industrialization, Economic Growth, and International Trade

Abstract

This paper analyzes the relationship between economic growth, industrialization, and international trade in a two‐sector endogenous growth model. With learning‐by‐doing, the economy grows perpetually along a balanced growth path, with manufacturing’s relative price declining continuously. Under trade, its pattern of trade and growth will be affected by external growth. If it remains diversified under trade, its growth can keep in pace with the rest of the world. If the growth rate of the rest of the world is higher than a certain limit, the economy cannot catch up and will eventually produce agriculture only.

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