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The Fallacy of Composition: A Review of the Literature

  • Jörg Mayer

This paper reviews the literature on the fallacy of composition with an emphasis on labour-intensive manufactures. It briefly addresses the protectionist and the partial-equilibrium versions of the argument before focusing on general-equilibrium considerations and the debate on the manufactures terms of trade of developing countries. The review indicates a potential fallacy of composition problem in labour-intensive manufactures, where competition among different groups of developing countries for export market shares may constitute a new form of the fallacy of composition. The likelihood of a country that exports labour-intensive manufactures to become subject to the fallacy of composition rises with the increasing integration of several strongly populated low-income countries into world markets, while it declines with continuous structural change and favourable aggregate demand conditions particularly in developed and the advanced developing countries. Copyright Blackwell Publishers Ltd 2002.

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Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 25 (2002)
Issue (Month): 6 (06)
Pages: 875-894

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Handle: RePEc:bla:worlde:v:25:y:2002:i:6:p:875-894
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  1. Ianchovichina, Elena & Robert McDougall, 2000. "Theoretical Structure of Dynamic GTAP," GTAP Technical Papers 480, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  2. Warwick J. McKibbin & K. K. Tang, 2000. "Trade and Financial Reform in China: Impacts on the World Economy," The World Economy, Wiley Blackwell, vol. 23(8), pages 979-1003, 08.
  3. Bleaney, Michael F & Greenaway, David, 1993. "Long-Run Trends in the Relative Price of Primary Commodities and in the Terms of Trade of Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 349-63, July.
  4. Athukorala, Premachandra, 1993. "Manufactured exports from developing countries and their terms of trade: A reexamination of the Sarkar-Singer results," World Development, Elsevier, vol. 21(10), pages 1607-1613, October.
  5. Ianchovichina, Elena, 2001. "Trade Liberalization in China’s Accession to WTO," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 421-445.
  6. Martin, Will & Mitra, Devashish, 2001. "Productivity Growth and Convergence in Agriculture versus Manufacturing," Economic Development and Cultural Change, University of Chicago Press, vol. 49(2), pages 403-22, January.
  7. Sapsford, David, 1990. "Primary Commodity Prices and the Terms of Trade," The Economic Record, The Economic Society of Australia, vol. 66(195), pages 342-56, December.
  8. Cline, William R., 1982. "Can the East Asian model of development be generalized?," World Development, Elsevier, vol. 10(2), pages 81-90, February.
  9. Prema-Chandra Athukorala, 2000. "Manufactured exports and terms of trade of developing countries: Evidence from Sri Lanka," Journal of Development Studies, Taylor & Francis Journals, vol. 36(5), pages 89-104.
  10. Hertel, Thomas W. & Terrie Walmsley, 2000. "China's Accession to the WTO: Timing is Everything," GTAP Working Papers 403, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  11. Zhi Wang, 1999. "The Impact of China's WTO Entry on the World Labour-intensive Export Market: A Recursive Dynamic CGE Analysis," The World Economy, Wiley Blackwell, vol. 22(3), pages 379-405, 05.
  12. Bloch, Harry & Sapsford, David, 2000. "Whither the Terms of Trade? An Elaboration of the Prebisch-Singer Hypothesis," Cambridge Journal of Economics, Oxford University Press, vol. 24(4), pages 461-81, July.
  13. Schiff, Maurice, 1995. "Commodity exports and the adding-up problem in LDCs: Trade, investment and lending policy," World Development, Elsevier, vol. 23(4), pages 603-615, April.
  14. Faini, Riccardo & Clavijo, Fernando & Senhadji-Semlali, Abdel, 1992. "The fallacy of composition argument : Is it relevant for LDCs' manufactures exports?," European Economic Review, Elsevier, vol. 36(4), pages 865-882, May.
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