We introduce international trade costs are into a two country, dynamic general equilibrium model with Ricardian trade. Continuum of industries differs in technology, and firms produce final goods and engage in R & D activities. R & D races improve the quality of a good, and the winner of R & D race produces the state-of-the-art product. Wage-inequality, trade pattern, range of traded and non-traded goods sectors, innovation and growth rates are all endogenous. Countries have different long run growth rates due to the non-traded goods sector and heterogeneity of technology across countries. The growth rate is higher, the higher is the inventive step, the lower is the R & D difficulty, the more productive is the labor, and the larger is the other country?s population size. Globalization reduces the wage-inequality between Home and Foreign, and leads the country with wider range of export sector to innovate and grow faster than its trade partner.