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Hysteresis in the Trade Pattern

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  • Gene M. Grossman
  • Elhanan Helpman

Abstract

We study a world economy comprising two countries that may differ only in their prior experience in the research lab. Entrepreneurs in each country develop new technologies for varieties of a differentiated product whenever expected profits justify up-front research costs. Research productivity depends upon national stocks of knowledge capital, which accumulate in proportion to local research activity. The countries produce and trade their unique varieties of the differentiated good, as well as a homogeneous, "traditional" product. In this context, we ask whether a country can overcome a late start in research to develop a comparative advantage in the high-technology sector. We also examine the welfare properties of the equilibrium trajectory and of policies that might be used to reverse a country's fate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3526.

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Date of creation: Dec 1990
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Publication status: published as Theory, Policy and Dynamics in International Trade, W.J. Ether et al.,(eds.), (Cambridge, Cambridge University Press, 1993). pp. 268-290
Handle: RePEc:nbr:nberwo:3526

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  1. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, Elsevier, vol. 49(1), pages 229-256, April.
  2. Gene M. Grossman & Elhanan Helpman, 1988. "Product Development and International Trade," NBER Working Papers 2540, National Bureau of Economic Research, Inc.
  3. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1243-68, September.
  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, Elsevier, vol. 27(1-2), pages 41-55, October.
  5. Ronald Jones, 1970. "The Role of Technology in the Theory of International Trade," NBER Chapters, in: The Technology Factor in International Trade, pages 73-94 National Bureau of Economic Research, Inc.
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Cited by:
  1. Rauch, James E., 1997. "Balanced and unbalanced growth," Journal of Development Economics, Elsevier, Elsevier, vol. 53(1), pages 41-66, June.

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