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A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade

  • Kiminori Matsuyama

This paper develops a Ricardian model of trade in which goods are indexed according to priority and higher-indexed goods are consumed only by richer households. South (North) has a comparative advantage in lower- (higher-) indexed goods and, hence, specializes in goods with lower (higher) income elasticities of demand. Product cycles and a southern terms-of-trade deterioration result from faster population growth and uniform productivity growth in South and a global productivity improvement. South's domestic income redistribution policy can improve its terms of trade so much that every household in South may be better off, at the expense of North.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 6 (December)
Pages: 1093-1120

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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1093-1120
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  1. Grossman, G.M. & Helpman, E., 1994. "Technology and Trade," Papers 175, Princeton, Woodrow Wilson School - Public and International Affairs.
  2. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  3. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
  4. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
  5. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
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