Trade and Growth with Static and Dynamic Economies of Scale

Abstract

This paper develops a dynamic two-country, two-sector model of international trade with asymmetric technological spillovers, static increasing returns to scale in one sector and dynamic increasing returns to scale in the other sector. It is found that the country with comparative advantage in the static sector is subject to slow structural changes, but the gains from exploiting economies of scale may outweigh the disadvantage of being locked into a static industrial structure.