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Growth-led exports: is variety the spice of trade?

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  • Joseph E. Gagnon

Abstract

Fast-growing countries tend to experience rapid export growth with little secular change in their terms of trade. This contradicts the standard Armington trade model, which predicts that fast-growing countries can experience rapid export growth only to the extent that they accept declining terms of trade. This paper generalizes the monopolistic competition trade model of Helpman and Krugman (1985), providing a basis for growth-led exports without declining terms of trade. The key mechanism behind this result is that fast-growing countries are able to develop new varieties of products that can be exported without pushing down the prices of existing products. There is strong support for the new model in long-run export growth of many countries in the post-war era.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 822.

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Date of creation: 2004
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Handle: RePEc:fip:fedgif:822

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Related research

Keywords: International trade ; Product differentiation;

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References

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  1. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
  2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Abdelhak S. Senhadji & Claudio E. Montenegro, 1999. "Time Series Analysis of Export Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 2.
  5. Pereira, Alfredo M & Xu, Zhenhui, 2000. "Export Growth and Domestic Performance," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 60-73, February.
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Cited by:
  1. Catherine L. Mann & Katharina Pl├╝ck, 2005. "The US Trade Deficit: A Disaggregated Perspective," Working Paper Series WP05-11, Peterson Institute for International Economics.
  2. Willem Thorbecke, 2011. "The Effect of Exchange Rate Changes on Trade in East Asia," Macroeconomics Working Papers 23274, East Asian Bureau of Economic Research.
  3. Kang, Kichun, 2009. "The export price index with the effect of variety and an empirical analysis," Economic Modelling, Elsevier, vol. 26(2), pages 385-391, March.
  4. KANG, Kichun, 2008. "How much have been the export products changed from homogeneous to differentiated? Evidence from China, Japan, and Korea," China Economic Review, Elsevier, vol. 19(2), pages 128-137, June.
  5. Vahagn Galstyan and Philip R. Lane, 2008. "External Imbalances and the Extensive Margin of Trade," The Institute for International Integration Studies Discussion Paper Series iiisdp259, IIIS.

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