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Monopolistic Competition and North-South Trade

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We examine the consequences of opening to international trade for a developing economy with open urban unemployment and rural-urban migration, where the urban sector is monopolistically competitive. We show that there exists a threshold level of urbanization prior to which increases in product variety will be reflected in increased urban unemployment, that opening to intra-industry trade with a high-wage economy (i.e., North-South trade) will reduce the rate of urban unemployment by a greater amount than intra-industry trade with a similar economy, and that trade intervention in the South may lower welfare by reducing varieties produced in the North.

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Bibliographic Info

Paper provided by Utah State University, Department of Economics in its series Working Papers with number 2011-01.

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Length: 30 pages
Date of creation: 20 Jan 2011
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Handle: RePEc:usu:wpaper:2011-01

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Keywords: Trade and monopolistic competition; Urban unemployment; North-South trade;

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Cited by:
  1. Ko, Chia Chiun & Frijters, Paul, 2014. "When Banana Import Restrictions Lead to Exports: A Tale of Cyclones and Quarantine Policies," IZA Discussion Papers 7988, Institute for the Study of Labor (IZA).
  2. Beladi, Hamid & Chao, Chi-Chur & Hollas, Daniel, 2013. "How growing asset inequality affects developing economies," Journal of Economics and Business, Elsevier, vol. 68(C), pages 43-51.

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