A Factor Endowment Theory of Endogenous Growth and International Trade


 The Frankel-Romer-Lucas theory of endogenous growth rests on the assumption of knowledge-based externalities and price-taking representative households. It is argued that, in a context of long-run growth, these assumptions are mutually incompatible (that representative households will co-operate to internalize the externalities) and that therefore the relevance of the theory must be questioned. In the present paper we offer a model of endogenous growth, based on representative households but recognizing that, in a context of long-run growth, the households must cooperate. Our economy consists of many countries, populated by households which are identical within countries but not necessarily across countries. In each country, government expenditure on a public intermediate good plays a crucial role in the realization of persistent growth. It is shown that the long-run pattern of international trade is determined in a Heckscher-Ohlin manner.

Yunfang HU
Department of Economics
Kobe University, Japan

Murray C. KEMP
Australian Graduate School of Management
University of New South Wales

Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
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