Question

Compare and contrast the neoclassical model, the new endogenous growth model and the strategic trade theory.

Answer 1

Pg. 1 Comperisian & Contract the neoclassical model X new - endogenous growth Traditional neoclassical growth modles, which assume exogenoux and universal technological progress and dininishing returns to capital accumulation, predict Convergence of countriel to the same steady-state rate of growth and level of income and capital per person, heith initially poor countries catching up but not overtaking the leaders. for instance, they can readily provide a rational for why Britain's lead in 19th century would have been whittled clown over time, but offer on direct way of addressing why Britain actually fall / f behind By contrast, endogenous growth modles, in which productivity growth in the outcome of incentives structures that may differs 8 across countries, entertain the possibility of persistent divergence in growth performance and thus of the overtaking of one country by another or 8 of ever- holdening gaps between leaders and followers. The root of this diffrence is their treatment of technical & change of and result / returns to I capital allemulation. The neoclassical treatmend of technical change is exogenous, ohile the endogenous model's treatment, wohile the well endogenous

The Strategic trade theory Strategic trade Theory describes the policy Certain countries adopt in order to affect the outcome of strategic interactions behocen firms in an international oligopoly, on I industry dominated by a small number of firmp. I The term strategic in this context refert to the strategic interaction between firats it does not refers to military objectives of importance of a specific industry. The main ideas in this theory is that frade policies can raise the level of clomestic welfare in a giver State by 8 Shifting profits from foreign to domestic firms. • Strategic use of export subsidies , import tariffy and 8 subsidies to RED or investment for firms facing global competition can have strategic effects to their development in international markets • Since intervention by more than one government can lead to cases resembling the Prisoner's dilema, the theory emphasized the importance of trade agreement that restrict sucke interventions