This paper analyses a simple model of a small economy with agricultural and non-agricultural sectors to study how opening to international trade affects structural transformation and output growth. In particular, we ask whether effects from accelerated structural transformation after opening to trade is large enough to account for the explosive growth patterns observed in newly industrialised economies. A simulation result suggests that the model-generated magnitude of growth is comparable to ‘growth miracles’ experienced in newly industrialised economies. Trade policies, relative productivity between agriculture and non-agriculture, and the persistence of structural transformation process jointly affect the growth dynamics after opening.
- international trade
- structural transformation