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The Volume and Composition of Trade between Rich and Poor Countries

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Author Info
Stokey, Nancy L

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Abstract

North-South trade is studied in a model of vertical product differentiation. The South produces a low-quality spectrum of goods, and the North a high-quality spectrum. An increase in the South's population lowers its relative wage, expands the spectrum of Southern goods at the top, and shifts the Northern spectrum upward. An increase in Northern labor productivity raises its relative wage. If the increase is neutral or export-biased, then the South's terms of trade improve, the spectrum of Northern products expands, the spectrum of Southern products contracts, and the volume of trade grows. If it is biased against Northern exports, these effects are reversed. Similar results hold for neutral increases in Southern productivity. Copyright 1991 by The Review of Economic Studies Limited.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 58 (1991)
Issue (Month): 1 (January)
Pages: 63-80
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Handle: RePEc:bla:restud:v:58:y:1991:i:1:p:63-80

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stokey, Nancy L, 1988. "Learning by Doing and the Introduction of New Goods," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 701-17, August. [Downloadable!] (restricted)
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  2. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April. [Downloadable!] (restricted)
  3. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132. [Downloadable!] (restricted)
  4. Jensen, Richard & Thursby, Marie, 1986. "A strategic approach to the product life cycle," Journal of International Economics, Elsevier, vol. 21(3-4), pages 269-284, November. [Downloadable!] (restricted)
  5. Jones, Larry E, 1984. "A Competitive Model of Commodity Differentiation," Econometrica, Econometric Society, vol. 52(2), pages 507-30, March. [Downloadable!] (restricted)
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  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  7. Gene M. Grossman & Elhanan Helpman, 1989. "Endogenous Product Cycles," NBER Working Papers 2913, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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