Growth and Trade: The North Can Lose
Several models of growth and trade conclude that a country grows more when trading with a less developed country. This article shows that this conclusion depends crucially on the assuming homothetic preferences and/or having just two goods with respect to learning-by-doing. The article presents a model where the more advanced country (North) can be worse off after trading with a less developed country (South) because the demand pattern of the South is biased toward Northern products with less learning-by-doing potential. Trade can worsen the welfare if the South is large with respect to the North and/or the preference for low-technology goods is high; necessary conditions are that the preferences are nonhomotheticity and that the North exports at least two types of goods. In this context, the article studies the welfare of North and South, separating the static from the dynamic gains from trade. Copyright 2000 by Kluwer Academic Publishers
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Volume (Year): 5 (2000)
Issue (Month): 2 (June)
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