DYNAMICS OF GENERAL PURPOSE TECHNOLOGIES IN AN OPEN ECONOMY

Abstract

While the Helpman-Trajtenberg model is successful in explaining the macroeconomic cycle generated by GPT in the context of a closed economy, open-economy implications regarding GPT have received scant attention. We seek to fill such void in the previous literature by developing a dynamic North-South trade model with GPT. Our major findings are: 1) the introduction of GPT causes a product cycle from the North to the South followed by a reverse product cycle from the South to the North; 2) the presence of trading partner can cushion the macroeconomic shock experienced by the North.