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The Volume and Composition of Trade Between Rich and Poor Countries

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  • Nancy L. Stokey

Abstract

North-South trade is studied in a model of vertical product differentiation. The South produces a low-quality spectrum of goods and the North a high-quality spectrum. An increase in the South's population lowers its relative wage, expands the spectrum of Southern goods at the top, and shifts the Northern spectrum upward. An increase in Northern labour productivity raises its relative wage. If the increase is neutral or export-biased, then the South's terms of trade improve, the spectrum of Northern products expands, the spectrum of Southern products contracts, and the volume of trade grows. If it is biased against Northern exports, these effects are reversed. Similar results hold for neutral increases in Southern productivity.

Suggested Citation

  • Nancy L. Stokey, 1991. "The Volume and Composition of Trade Between Rich and Poor Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 63-80.
    • Handle: RePEc:oup:restud:v:58:y:1991:i:1:p:63-80.
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    File URL: http://hdl.handle.net/10.2307/2298045
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