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Hicks theorem: Effects of technological improvement in the Ricardian model

  • Ju, Jiandong
  • Yang, Xuebing

Using the Ricardian model, we formally prove Hicks' [Hicks, John (1953), "An Inaugural Lecture," Oxford Economic Papers 5(2), 117-135.] insight into the effects of technological improvement: uniform technological improvement at home benefits all countries (or at least does not hurt); export-biased technological improvement at home benefits the foreign country (or at least does not hurt), but import-biased technological improvement at home can hurt the foreign country as long as the comparative advantage is not reversed. We then study optimal strategies of technological improvement and show that for a small country it is optimal to choose export-biased technological improvement. For a large country, it is optimal to improve technology in both sectors at a rate proportional to the consumers' expenditure share. Therefore, if the expenditure share of the import sector is larger than that of the export sector, a large country will choose a relatively import-biased technological improvement, which will hurt its trading partner.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 18 (2009)
Issue (Month): 2 (March)
Pages: 239-247

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Handle: RePEc:eee:reveco:v:18:y:2009:i:2:p:239-247
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  1. Helpman, E., 1992. "Innovation, Imitation and intellectual Property Rights," Harvard Institute of Economic Research Working Papers 1597, Harvard - Institute of Economic Research.
  2. Grossman, G.M. & Helpman, E., 1994. "Technology and Trade," Papers 175, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Eaton, Jonathan & Kortum, Samuel, 2001. "Technology, trade, and growth: A unified framework," European Economic Review, Elsevier, vol. 45(4-6), pages 742-755, May.
  4. Jonathan Eaton & Samuel Kortum, 2006. "Innovation, Diffusion, and Trade," NBER Working Papers 12385, National Bureau of Economic Research, Inc.
  5. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  6. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  7. Paul A. Samuelson, 2004. "Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 135-146, Summer.
  8. repec:fth:bosecd:110 is not listed on IDEAS
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