Trade Liberalization, International Relocation of Firms, and Economic Growth

Abstract

This paper presents a framework for understanding the role of global tariff rate reductions in affecting the world growth rate, given knowledge spillovers in research and development (R&D) and the relocation of firms. In particular, we highlight one aspect of the model: the international relocation of firms associated with a reduction in world tariff rates. This paper shows that, given the spillover effect of localized R&D knowledge, a simultaneous multilateral reduction in the common tariff rate increases the world growth rate through the relocation of firms.