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A Many-Country Model of Industrialization

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  • Breinlich, Holger
  • Cuñat, Alejandro

Abstract

We draw attention to the role of economic geography in explaining important cross-sectional facts which are difficult to account for in existing models of industrialization. By construction, closed-economy models that stress the role of local demand in generating sufficient expenditure on manufacturing goods are not suited to explain the strong and negative correlation between distance to the world's main markets and levels of manufacturing activity in the developing world. Secondly, open-economy models that emphasize the importance of comparative advantage are at odds with a positive correlation between the ratio of agricultural to manufacturing productivity and shares of manufacturing in GDP. This paper provides a potential explanation for these puzzles by nesting the above theories in a multi-location model with trade costs. Using a number of simple analytical examples and a full-scale multi-country calibration, we show that the model can replicate the above stylized facts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8495.

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Date of creation: Jul 2011
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Handle: RePEc:cpr:ceprdp:8495

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Keywords: Economic Geography; Industrialization; International Trade;

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