A two-sector, two-period trade model is developed in which one sector has increasing returns based on the creation of specialized intermediate inputs. One of the two (otherwise identical) countries is not able to enter the increasing returns sector in the first period through some "accident of history". A theoretical and numerical analysis solves for parameter regimes under which firms in the disadvantaged country are or are not able to enter the increasing returns sector in the second period. The welfare consequences of the two alternative second period outcomes are compared to one another and to an equilibrium with both countries entering in the first period. The disadvantaged country may fall further behind in the second period even when its firms are able to enter.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
3284.
Length: Date of creation: Mar 1990 Date of revision: Handle: RePEc:nbr:nberwo:3284
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Gene M. Grossman & Elhanan Helpman, 1989.
"Endogenous Product Cycles,"
NBER Working Papers
2913, National Bureau of Economic Research, Inc.
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Feenstra, Robert C & Markusen, James R, 1994.
"Accounting for Growth with New Inputs,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 429-47, May.
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Joseph F. Francois & Douglas Nelson, 2002.
"A Geometry Of Specialisation,"
Economic Journal,
Royal Economic Society, vol. 112(481), pages 649-678, July.
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