Growth spillover through trade: A spatial dynamic panel data approach

This paper empirically examines the international spillover of economic growth through bilateral trade. We extend the Solow growth model with a spatial autoregressive term and a spatial time lag term, and estimate such a model with a sample of 26 OECD countries over the period 1971-2005. We find that there is a positive spillover effect of growth from one country to its trade partners. The implied rate of convergence is higher after including the spatial terms.