In this study we look at the effects on economic growth of the continuous introduction of
intermediate goods. Our theoretical framework enhances the endogenous growth theory,
by allowing for participation in international trade. Furthermore, we test the behavior of
the proposed theoretical model with data provided from the Penn World Tables.
The theoretical part describes an economy in two different stages: first, we develop
a model for a closed economy, and study the effects of the continuous introduction of
durable goods. We show that the continuous introduction of durables causes sustained
economic growth. We demonstrate that a more educated labor force contributes more to
the growth of the economy. Second, we assume that trade takes place among similar
countries. Both final and intermediate goods are traded, and we show that participation in
international trade enhances the economic growth of this economy. We prove that with no
restrictions to trade, countries continue to grow. Because we assumed that the countries
were identical, we found that those countries that pursue the introduction of new durables
will grow faster.
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