Learning by Doing and International Trade in a Succesively Monopolistic Market with Multistage Production

This paper develops a dynamic model where there is an opportunity for learning by doing in a vertically related market with successive monopolies, an upstream firm in a technologically advanced country and a downstream firm in a technically lagging country. Under this framework, learning by doing promotes import substitution in the technically lagging country unless the downstream firm pays higher wages than the upstream firm does. If the downstream firm pays lower wages than the upstream firm does, learning by doing also affects each firm's cumulative profit: the upstream firm's profit always increases, but the downstream firm's profit would either increases or decreases depending on the cost structure and the shape of the learning curve. In particular, the downstream firm's cumulative profit is more likely to decrease if the wage gap between two countries is very big and/or if the downstream .firm is a very fast learner.