Quality Ladders in a Ricardian Model of Trade with Nonhomothetic Preferences
AbstractThe literature on North-South trade has explored conditions under which international trade might magnify income disparities between the advanced North and the backward South. Little attention has yet been placed on the effect of trade on countries that do not display substantial dissimilarities concerning aggregate capital endowments. We show that even when no single country is technologically more advanced than any other one and productivity changes are uniform and identical in all countries, international trade may still be a source of income divergence when nonhomothetic preferences and quality ladders are jointly taken into account. Income divergence will be experienced when comparative advantages induce patterns of specialisation that, although optimal for each country at some initial point in time, do not offer the same scope for improvements in terms of subsequent quality upgrading of final products.
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Bibliographic InfoPaper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c015_033.
Length: 42 pages JEL Classification: F11, F43
Date of creation: Sep 2010
Date of revision:
International Trade; Nonhomothetic Preferences; Quality Ladders;
Other versions of this item:
- Esteban Jaimovich & Vincenzo Merella, 2012. "Quality Ladders In A Ricardian Model Of Trade With Nonhomothetic Preferences," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 908-937, 08.
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