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Hystersis in the Trade Pattern

Author

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  • Grossman, Gene M.
  • Helpman, Elhanan

Abstract

We study a world economy comprising two countries that may differ only in their prior experience in the research lab. Entrepreneurs in each country develop new technologies for varieties of a differentiated product whenever expected profits justify up-front research costs. Research productivity depends upon national stocks of knowledge capital, which accumulate in proportion to local research activity. The countries produce and trade their unique varieties of the differentiated good, as well as a homogeneous, "traditional" product. In this context, we ask whether a country can overcome a late start in research to develop a comparative advantage in the hightechnology sector. We also examine the welfare properties of the equilibrium trajectory and of policies that might be used to reverse a country's fate.

Suggested Citation

  • Grossman, Gene M. & Helpman, Elhanan, 1990. "Hystersis in the Trade Pattern," Foerder Institute for Economic Research Working Papers 275499, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275499
    DOI: 10.22004/ag.econ.275499
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    Cited by:

    1. Laura M. Werner, 2020. "Hysteresis losses in the Preisach framework," Empirical Economics, Springer, vol. 58(3), pages 1249-1278, March.
    2. Francis Green & David Ashton, 1992. "Skill Shortage and Skill Deficiency: A Critique," Work, Employment & Society, British Sociological Association, vol. 6(2), pages 287-301, June.
    3. Rauch, James E., 1997. "Balanced and unbalanced growth," Journal of Development Economics, Elsevier, vol. 53(1), pages 41-66, June.

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