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Abstract

This paper analyzes the relationship between industrialization, economic growth and international trade for an economy with two sectors. With learning by doing, the manufacturing sector grows over time, but no learning by doing is experienced in the agricultural sector. Along a balanced growth path (BGP), the economy grows perpetually as the manufacturing sector grows. This model is very much different from those considered in the literature as along a BGP the two sectors do not grow at the same rate and therefore the relative price does not remain stationary. The economy is then opened up to trade. Different patterns of trade and production are examined, and in each of these cases the effects of trade on industrialization and growth are derived.


Comments on this paper are most welcome. Please send them to karyiu@u.washington.edu.