North-South trade with increasing product variety
We present a model of one-way product cycles in international trade. Firms develop new product varieties in technologically advanced countries (the North), other firms copy these products in less developed countries (the South) and all shifts in production go from North to South. What distinguishes this paper from the earlier literature are the model's implications for economic growth and wage determination. Economic growth is characterized by weak scale effects, in contrast to the strong scale effects in the earlier literature. The model can also account for large North-South wage differences for plausible parameter values.
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10-89, Tel Aviv.
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