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North–South Trade Liberalization and Economic Welfare

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  • John Gilbert
  • Hamid Beladi
  • Reza Oladi

Abstract

We consider a general equilibrium model of a developing economy (the South) that opens to trade with a developed economy (the North). The southern economy is characterized by open urban unemployment and rural–urban migration, a competitive agricultural sector and a monopolistically competitive manufacturing sector. Hence, there is potential for both inter- and intra-industry trade to arise on liberalization, in addition to distortionary effects of duality. Southern comparative advantage in agriculture may arise from the labor market distortion and the basis for intra-industry trade is love for variety. We characterize various configurations of the trade pattern, and the resulting welfare consequences of opening to trade in this context. We illustrate a new mechanism under which in some circumstances it may be possible for trade liberalization to lower economic welfare in the South.

Suggested Citation

  • John Gilbert & Hamid Beladi & Reza Oladi, 2015. "North–South Trade Liberalization and Economic Welfare," Review of Development Economics, Wiley Blackwell, vol. 19(4), pages 1006-1017, November.
    • Handle: RePEc:bla:rdevec:v:19:y:2015:i:4:p:1006-1017
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    File URL: http://hdl.handle.net/10.1111/rode.12182
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    References listed on IDEAS

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    2. Marjit Sugata & Oladi Reza & Roychowdhury Punarjit, 2020. "Income Distribution and Trade Pattern," Review of Economics, De Gruyter, vol. 71(1), pages 1-14, April.
    3. Pi Jiancai & Yin Jun, 2016. "Privatization, Unemployment, and Welfare in the Harris-Todaro Model with a Mixed Duopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-12, October.

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