This article presents a Ricardian model of trade with learning-by-doing to study the effect of barriers to trade in products with low growth potential on the long-run economic growth. The model shows that, when elasticity of demand for the product with a lower learning potential is lower than unitary, a reduction in the tariff imposed on this product, may shift the demand toward the product with a higher learning potential, thus enhancing economic growth in the exporter economy. Therefore, the current trend of reduction in tariffs on agricultural exports not only generates a positive welfare effect in the short run, but may similarly be beneficial for developing economies in the long run, since it also increases their incentive to develop sectors with higher growth potential
Trade in goods that are not perfect substitutes can considerably change the predictions of standard neoclassical models about the effects of demographic developments. This paper considers a relative decrease in the population size of one country, when countries specialize in the production of different intermediate goods. The degree of substitutability is crucial for the direction of capital flows between the countries and for the development of wages. The less those goods are substitutes, the stronger the long-run international spillover effects of a demographic shock will be. For the interest rate effects, also international differences in saving rates due to e.g., different pension schemes have to be taken into account.
The relative merits in a monetary union of a fiscal federalism scheme and intergovernmental fiscal cooperation without a federal authority are assessed using a standard macroeconomic model commonly used for policy analysis. We show that it is impossible to conclude that one solution is always preferable to the other. The benefits from an extra instrument and a policymaker with union-wide objectives may not compensate the adding of a non-cooperative player to the policy game. This result is sustained when an active monetary policy is introduced in the model or when shocks afect the functioning of the economy. The welfare ranking of these two options depends on the cross-border spillover efects, the objectives of policymakers and the variances of shocks.