Trade liberalization, investment and growht

This article presents five theoretical openness and growth links that can account for trade-induced investment led growth. The links are all demonstrated with a neoclassical growth model developed in the context of trade models that allow for imperfect competition and scale economies. This sort of old growth theory in a new trade model has not been thoroughly explored in the literature since the profession skipped from old-growth-old-trade models straigth to new-growth-new-trade models. Nonetheless, such models are necessary to explain several key aspects of the econometric evidence on trade and growth. For example, cross-country data suggests that openness influences growth only via its effects on investment, and suggests that openness promotes investment in all countries whatever the capital-intensity of their exports (contrary to the prediction of old-growth-old-trade models).