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The Volume and Composition of Trade Between Rich and Poor Countries

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  • Nancy L. Stokey

Abstract

North-South trade is studied in a model of vertical product differentiation. The South produces a low-quality spectrum of goods, and the North a high-quality spectrum. An increase in the South's population lowers its relative wage, expands the spectrum of Southern goods at the top, and shifts the Northern spectrum upward. An increase in Northern labor productivity raises its relative wage. If the increase is neutral or export-biased, then the South's terms of trade improve, the spectrum of Northern products expands, the spectrum of Southern products contracts, and the volume of trade grows. If it is biased against Northern exports, these effects are reversed. Similar results hold for neutral increases in Southern productivity. Copyright 1991 by The Review of Economic Studies Limited.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 849.

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Date of creation: Sep 1989
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Handle: RePEc:nwu:cmsems:849

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  1. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
  2. Grossman, Gene M & Helpman, Elhanan, 1991. "Endogenous Product Cycles," Economic Journal, Royal Economic Society, vol. 101(408), pages 1214-29, September.
  3. Stokey, Nancy L, 1988. "Learning by Doing and the Introduction of New Goods," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 701-17, August.
  4. Jensen, Richard & Thursby, Marie, 1986. "A strategic approach to the product life cycle," Journal of International Economics, Elsevier, vol. 21(3-4), pages 269-284, November.
  5. Larry E. Jones, 1982. "A Competitive Model of Commodity Differentiation," Discussion Papers 526, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  7. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April.
  8. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
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