In the two-sector learning-by-doing model of Grossman and Helpman (1990, 1991) with no technological transfers and international trade, countries with a comparative advantage in fast growing industries will:
A) have permanently faster rates of growth than countries with a comparative advantage in slow growing industries.
B) have temporarily faster rates of growth than countries with a comparative advantage in slow growing industries, but the differences in growth rates will eventually disappear.
C) have temporarily faster rates of growth than countries with a comparative advantage in slow growing industries, but the differences in growth rates will eventually disappear and will become stagnant as technological transfers erodes profit margins of the fast growing industry/country.
D) None of the above.

Question

Quizplus · Accepted Answer

Countries with a comparative advantage in fast growing industries will have permanently faster rates of growth than countries with a comparative advantage in slow growing industries because the learning-by-doing effect will lead to a permanent increase in productivity in the fast growing industries.

In the Two-Sector Learning-By-Doing Model of Grossman and Helpman (1990