Do open economies earn better economic performance than closed economies? The most basic measure of openness is the simple trade volume, which is exports plus imports divided by GDP. A large number of empirical studies found a positive relationship, but few theoretical studies used this definition in endogenous growth models. We develop a two-country (Home and Foreign) by two-good (consumption good and investment good) by one factor (capital) endogenous growth model with international knowledge spillover to study the relationship between trade volume and economic growth. We find that trade volume are positively related to economic growth rate when a variation from the production coefficients in both countries.
9th Annual Conference of Asia-Pacific Economic Associa