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Productivity, Demand and the Home Market Effect

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  • Giraldo, Iader
  • Jaramillo, Fernando

Abstract

The causality between international trade and industrialization is still ambiguous. We consider a model of international trade with the Home Market Effect - with differences in income and productivity between sectors and between countries - in order to identify additional channels for determining the effects of international trade on industrialization. Introducing non-homothetic preferences and differences in productivity aids in the interpretation of any apparent paradoxes within international trade, such as the commercial relations between more populated countries like China and India and large economies such as the U.S. Population size, demand composition and productivity levels constitute the three main channels for determining the effects of international trade. Interactions among these channels define the results obtained in terms of industrialization, while welfare levels are always higher in relation to autarky.

Suggested Citation

  • Giraldo, Iader & Jaramillo, Fernando, 2016. "Productivity, Demand and the Home Market Effect," Documentos de Trabajo 014447, Universidad del Rosario.
  • Handle: RePEc:col:000092:014447
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    References listed on IDEAS

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    Cited by:

    1. Giraldo, Iader & Jaramillo, Fernando, 2020. "International trade and “Catching up with the Joneses”: Are the consumption patterns convergent?," Research in Economics, Elsevier, vol. 74(3), pages 233-249.

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    More about this item

    Keywords

    International Trade; Non-homothetic Preferences; Home Market Effect; Monopo-listic Competition.;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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