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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]

We show that indeterminacy arises in a discrete-time competitive two-country dynamic model of international trade in which externalities, imperfect competition, public goods, and government intervention are assumed away. The present model is a standard dynamic trade model in the sense that there is neither an international credit market nor international factor mobility, and these intrinsic features are a source of indeterminacy. Indeterminacy is implied by the condition for the existence of a steady state. [ABSTRACT FROM AUTHOR]