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Pattern of Trade and Economic Development in the Model of Monopolistic Competition

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Author Info

  • Jeffrey D. Sachs
  • Xiaokai Yang
  • Dingsheng Zhang

Abstract

The paper introduces differences in production and transaction conditions between countries into the model of monopolistic competition to investigate the interplay between trade policies and development strategies. It applies inframarginal analysis, which is total benefit analysis between corner solutions in addition to marginal analysis of each corner solution, to show that as transaction conditions are improved, the general equilibrium may discontinuously jump across different patterns of trade and economic development. It compares the marginal and inframarginal comparative statics of equilibrium in the model of monopolistic competition with the core theorems in the neoclassical trade models and with conventional wisdom in development economics. It shows that as analytical framework is altered, the meanings of concepts and related empirical observations will be changed too.

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File URL: http://www.cid.harvard.edu/cidwp/pdf/014.pdf
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Bibliographic Info

Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 14.

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Date of creation: Apr 1999
Date of revision:
Handle: RePEc:wop:cidhav:14

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Postal: Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.
Fax: 617-496-2554
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Web page: http://www.cid.harvard.edu/cidwp/
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Related research

Keywords: trade pattern; development strategy; income distribution; terms of trade;

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References

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  1. Balassa, Bela, 1989. "Outward orientation," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 31, pages 1645-1689 Elsevier.
  2. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  3. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
  4. Easton, Stephen T & Walker, Michael A, 1997. "Income, Growth, and Economic Freedom," American Economic Review, American Economic Association, vol. 87(2), pages 328-32, May.
  5. Cheng, W.L. & Sachs, J.D. & Yang, X., 1999. "An Inframarginal Analysis of the Heckscher-Olin Model with Transaction Costs and Technological Comparartive Advantage," Papers 9, Chicago - Graduate School of Business.
  6. Bruton, H.J., 1998. "A Reconsideration of Import Substitution," Center for Development Economics 156, Department of Economics, Williams College.
  7. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-58, May.
  8. Henry J. Bruton, 1998. "A Reconsideration of Import Substitution," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 903-936, June.
  9. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
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Cited by:
  1. Fan, C. Simon, 2004. "Quality, trade, and growth," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 271-291, October.
  2. Cheng, Wenli & Yang, Xiaokai, 2004. "Inframarginal analysis of division of labor: A survey," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 137-174, October.

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