The Volume and Composition of Trade Between Rich and Poor Countries
AbstractNorth-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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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 849.
Date of creation: Sep 1989
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Other versions of this item:
- Stokey, Nancy L, 1991. "The Volume and Composition of Trade between Rich and Poor Countries," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 63-80, January.
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