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Developing country growth and developed country response

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  • Alan Deardorff

Abstract

This paper makes a theoretical argument that growth in developing countries is likely to worsen the income distribution in developed countries and lead to a protectionist response that undermines the incentives for developing country growth. The model for this purpose is the two-cone version of the Heckscher-Ohlin (HO) trade model, in which countries have different factor prices even with free trade, and in which they produce mostly different groups of goods. In this model, unlike the HO model with factor price equalization, growth by the poor country expands the output of its capitalintensive good, which is also the labour-intensive good of the other country. Regardless of whether factors are mobile or immobile across sectors, this reduces the real wages of factors that are either intensive or specific in the labour-intensive sector of the rich country. The paper argues that this will then lead to the rich country restricting trade. This, in turn, will lower the return to capital in the poor country and reduce the incentive for further growth.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 10 (2001)
Issue (Month): 4 ()
Pages: 373-392

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Handle: RePEc:taf:jitecd:v:10:y:2001:i:4:p:373-392

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Related research

Keywords: Trade And Growth; Income Distribution;

References

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  1. Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 197-209, May.
  2. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  3. repec:fth:michin:461 is not listed on IDEAS
  4. Deardorff, A.V., 1999. "Patterns of Trade and Growth Across Cones," Working Papers 443, Research Seminar in International Economics, University of Michigan.
  5. repec:fth:michin:431 is not listed on IDEAS
  6. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  7. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," NBER Working Papers 6785, National Bureau of Economic Research, Inc.
  8. Quah, Danny, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEPR Discussion Papers 1355, C.E.P.R. Discussion Papers.
  9. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," CEPR Discussion Papers 1350, C.E.P.R. Discussion Papers.
  10. repec:fth:michin:443 is not listed on IDEAS
  11. Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," NBER Working Papers 5693, National Bureau of Economic Research, Inc.
  12. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
  13. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
  14. Hakura, D. & Deardorff, A.V., 1993. "Trade and Wages: What Are the Questions?," Working Papers 341, Research Seminar in International Economics, University of Michigan.
  15. Deardorff, Alan V, 2001. "Does Growth Encourage Factor Price Equalization?," Review of Development Economics, Wiley Blackwell, vol. 5(2), pages 169-81, June.
  16. Deardorff, A.V., 1991. "The Possibility of Factor Price Equalization, Revisited," Working Papers 277, Research Seminar in International Economics, University of Michigan.
  17. Deardorff, A.V., 2000. "Market Access for Developing Countries," Working Papers 461, Research Seminar in International Economics, University of Michigan.
  18. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  19. Jones, Ronald W, 1974. "The Small Country in a Many-Commodity World," Australian Economic Papers, Wiley Blackwell, vol. 13(23), pages 225-36, December.
  20. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
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