'Quality ladders' and Ricardian trade

M. Scott Taylor, University of Calgary

Abstract

A Model of endogenous growth and trade is developed that extends the continuum Ricardian model of Dornbusch et al. (1977) to a dynamic framework, generalizes the 'Quality ladders' approach of Grossman and Helpman (1991a,b), and complements the work of Krugman (1987) on dynamic Ricardian economies. In contrast to earlier work the model incorporates heterogeneity across industries in research and production technologies, and in the technological opportunity for innovation. The importance of heterogeneity is demonstrated through a comparative steady-state analysis. Several applications for the model are discussed and many others appear possible given its relatively simple structure.