Agricultural Development vs. Industrialization: Effects of Trade

The question addressed in this paper is how trade affects the composition of the national product, thus having an effect on the overall growth rate of the economy. The paper uses a dynamic general equilibrium model with three different consumption goods: agriculture, manufactures, and services (nontradable). The main finding is that if the country produces only primaries and services, the effects of trade on growth are mixed. Trade helps growth at low levels of income but at higher levels trade slows the country's growth. If the country produces manufactures and services, the effect of trade on growth is not substantial.