Following the seminal paper of Frankel and Romer (1999), ‘Does trade cause growth?’, the income effects of aggregate trade openness have been controversial. This research shows that the type of product that is traded has first-order effects while the overall trade intensity has second-order effects on per capita income because of (i) the hierarchical structure of learning by doing in products with different levels of sophistication of the production processes; and (ii) the fertility and education effects of trade specialization following the quantity-quality tradeoff framework of Galor and Mountford (2006). Using data on trade disaggregated by the level of technological sophistication of the production process for 223 countries over the 1962-2019 period, we find that (1) the growth effects of foreign trade differ widely across technology categories; (2) high-tech trade has permanent growth effects; and (3) a significant fraction of the income effects of trade are mediated through education and fertility.
JEL Codes: F14, F43, J13, O11, O33.