Beyond Icebergs: Modeling Globalization as Biased Technical Change
AbstractWe propose a new approach to model costly international trade, which includes the standard approach, the "iceberg" transport cost, as a special case. The key idea is to make the technologies of supplying the good depend on the destination of the good. To demonstrate our approach, we extend the Ricardian model with a continuum of goods, due to Dornbusch, Fischer and Samuelson (1977), by introducing multiple factors of production and by making each industry consist of the domestic division, which supplies the good at home, and the export division, which supplies the good abroad. If the two divisions differ only in the total factor productivity, our model becomes isomorphic to the DFS model with the iceberg transport cost. When the two divisions differ also in the factor intensity, globalization changes the relative factor prices in the same direction across the countries, in sharp contrast to the usual Stolper-Samuelson effect, which suggests that the relative factor prices move in different irections in different countries.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-295.
Length: 24 pages
Date of creation: Aug 2004
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Other versions of this item:
- Kiminori Matsuyama, 2004. "Beyond Icebergs: Modeling Globalization as Biased Technical Change," Discussion Papers 1390, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- NEP-ALL-2004-08-23 (All new papers)
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