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We study a two-country endogenous growth model in which the long-run growth is propelled by the accumulation of physical and human capital. We show that in the integrated world economy, there exists a unique and locally saddlepoint stable balanced growth equilibrium. We also show that the incorporation of adjustment costs in the process of human capital accumulation leads to a lower long-run growth rate. We then show that, in the 2-country world economy with international trade, balanced growth is possible. Finally, we present a dynamic Heckscher–Ohlin theorem concerning the pattern of international trade. [ABSTRACT FROM AUTHOR]

The paper builds a theoretical model of endogenous growth motivated by the recent Indian paradox of an improving GDP growth rate in the face of unsatisfactory employment growth rate. The source of the problem is believed to be inadequate growth of manufacture for the absorption of unskilled or semi-skilled labour in rural sectors. The paper studies the impact of free trade on employment and GDP growth in a small, developing economy in the absence as well as presence of foreign direct investment . The model also recognizes the importance of public infrastructure accumulation to support the growth process. The results indicate that free trade with or without a corresponding free inflow of foreign capital into the manufacturing sector has a positive impact on employment and GDP growth. However, the beneficial effect is stronger in the presence of foreign capital. Foreign and domestic capital grow at equal rates in equilibrium. [ABSTRACT FROM AUTHOR]