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A Dynamic North-South Model of Demand-Induced Product Cycles

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  • Föllmi, Reto
  • Hanslin, Sandra
  • Kohler, Andreas

Abstract

This paper presents a dynamic North-South general equilibrium model with non- homothetic preferences. Innovation takes place in the rich North while firms in the poor South at random imitate products manufactured in the North. The model is able to generate endogenous product cycles as described by Vernon (1966) where the different stages of the product cycle are not only determined by supply side factors but also by the distribution of income between North and South. We simulate comparative statics results of changes in Southern labor productivity, changes in inequality across regions, and changes in the savings rate. We further provide suggestive evidence for the product cycle stages.

Suggested Citation

  • Föllmi, Reto & Hanslin, Sandra & Kohler, Andreas, 2012. "A Dynamic North-South Model of Demand-Induced Product Cycles," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62023, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc12:62023
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    3. Kiminori Matsuyama, 2019. "Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade," Econometrica, Econometric Society, vol. 87(2), pages 497-528, March.
    4. Fukuda, Katsufumi, 2019. "Effects of trade liberalization on growth and welfare through basic and applied researches," Journal of Macroeconomics, Elsevier, vol. 62(C).
    5. Prince Jaiblai & Vijay Shenai, 2019. "The Determinants of FDI in Sub-Saharan Economies: A Study of Data from 1990–2017," IJFS, MDPI, vol. 7(3), pages 1-31, August.
    6. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," CID Working Papers 130a, Center for International Development at Harvard University.
    7. Ardelean, Adina & Lugovskyy, Volodymyr, 2019. "Tariffs, product quality, and the relative prices of durables: Evidence from 1989 to 2009 U.S. microdata," European Economic Review, Elsevier, vol. 114(C), pages 54-75.
    8. Andreas Kohler, 2012. "Trade and growth in an unequal global economy," ECON - Working Papers 081, Department of Economics - University of Zurich.

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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F10 - International Economics - - Trade - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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