From stationary state to endogenous growth: International trade in the mathematical formulation of the Ricardian system

Abstract

In his 1814-1815 correspondence with Malthus and in his Essay on Profits Ricardo championed the free importation of wage-goods as a highly effective growth-enhancing policy. In order to capture this aspect in the mathematical formulation of the Ricardian system first introduced by Pasinetti in 1960 in the context of a closed economy we produce a variant of that model where the economy is a small open one. We show that this economy is characterized by endogenous growth since the growth rate is bounded from below and we locate two thresholds concerning the allocation of labour among the two sectors of the economy and the pattern of international trade.