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A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade

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Kiminori Matsuyama

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Abstract

This paper develops a Ricardian model of trade in which goods are indexed according to priority and higher-indexed goods are consumed only by richer households. South (North) has a comparative advantage in lower- (higher-) indexed goods and, hence, specializes in goods with lower (higher) income elasticities of demand. Product cycles and a southern terms-of-trade deterioration result from faster population growth and uniform productivity growth in South and a global productivity improvement. South's domestic income redistribution policy can improve its terms of trade so much that every household in South may be better off, at the expense of North.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 6 (December)
Pages: 1093-1120
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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1093-1120

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  1. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December. [Downloadable!] (restricted)
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  2. Grossman, Gene M. & Helpman, Elhanan, 1995. "Technology and trade," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 25, pages 1279-1337 Elsevier. [Downloadable!] (restricted)
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  3. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September. [Downloadable!] (restricted)
  4. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October. [Downloadable!] (restricted)
  5. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December. [Downloadable!] (restricted)
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(explanations, 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. Devashish Mitra & Vitor Trindade, 2003. "Inequality and Trade," NBER Working Papers 10087, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Juan Carlos Hallak, 2004. "Product Quality, Linder, and the Direction of Trade," NBER Working Papers 10877, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Pablo D. Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2009. "Income Distribution, Product Quality, and International Trade," NBER Working Papers 15329, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Diego Winkelried, 2005. "Income Distribution and the Size of the Informal Sector," Development and Comp Systems 0512005, EconWPA. [Downloadable!]
  5. Hatipoglu, Ozan, 2008. "Patent, Inequality and Innovation-Driven Growth," MPRA Paper 7855, University Library of Munich, Germany. [Downloadable!]
  6. Kristian Behrens & Yasusada Murata, 2009. "Globalization and Individual Gains from Trade," Cahiers de recherche 0928, CIRPEE. [Downloadable!]
  7. Kwok Tong Soo, 2006. "What does the eclectic trade model say about the Samuelson conundrum?," Working Papers 004284, Lancaster University Management School, Economics Department. [Downloadable!]
  8. Gancia, Gino, 2003. "Globalization, Divergence and Stagnation," Seminar Papers 720, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  9. Ana Fernandes & Krishna B. Kumar, 2003. "Inappropriate Technology," Development and Comp Systems 0304003, EconWPA. [Downloadable!]
  10. Reto Foellmi & Joseph Zweimüller, 2006. "Mass Consumption, Exclusion, and Unemployment," IEW - Working Papers iewwp296, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  11. Nilsson, Desirée, 2007. "Changing Export Structure According to Income Elasticity - Kaldor revisited," Working Paper Series in Economics and Institutions of Innovation 92, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies. [Downloadable!]
  12. Yo Chul Choi & David Hummels & Chong Xiang, 2006. "Explaining Import Variety and Quality: The Role of the Income Distribution," NBER Working Papers 12531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Juan Carlos Hallak, 2006. "A Product-Quality View of the Linder Hypothesis," NBER Working Papers 12712, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Albert de Vaal & Joachim Stibora, 2006. "Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences," DEGIT Conference Papers c011_057, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  15. Foellmi, Reto & Zweimüller, Josef, 2002. "Structural Change and the Kaldor Facts of Economic Growth," CEPR Discussion Papers 3300, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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