DP1335 | Knowledge Dissemination, Capital Accumulation, Trade and Endogenous Growth

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The theoretical framework presented here preserves many of the primary features of the standard neo-classical model, while introducing some modifications that transform it into an open economy endogenous growth model with knowledge accumulation. Knowledge accumulation is determined in part by the extent of knowledge spillovers from abroad and the extent to which each country is exposed to the knowledge stocks of other countries. The degree of this exposure is assumed to be directly related to the level of external trade - which implies that commercial policy can affect economic growth. In particular, unilateral trade liberalization may increase steady-state income growth in all countries.