CAN PRODUCTIVITY PROGRESS IN CHINA HURT THE USA? SAMUELSON'S EXAMPLE EXTENDED

Abstract. This paper develops a general equilibrium three‐goods Ricardian model that extends Samuelson's example on the impact of productivity progress. Our model highlights Samuelson's insight that productivity progress can change the pattern of trade and in turn can have dramatic welfare implications. It also shows that while Samuelson is correct that productivity growth in one country can hurt another, the loss is not as permanent as his example appears to suggest. Continuing productivity growth in one country is likely to benefit all trading countries in the long run.