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Subject 6. Growth in an Open Economy PDF Download
Opening an economy to financial and trade flows has a major impact on economic growth. The reasons are more financing channels, comparative advantage from specialization, a larger market for companies? products, easier technology transfer across countries, more competition, etc.

The neoclassical model predicts convergence should occur more quickly if economies are open. Endogenous models also predict the rates of economic growth will increase, but through different effects - a selection effect, a scale effect and a backwardness effect.

The evidence also suggests that more open and trade-oriented economies will grow at a faster rate.

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