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Neoclassical Growth, Manufacturing Agglomeration and Terms of Trade

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  • Dieter M. Urban

    (Centro Studi Luca d´Agliano)

Abstract

This paper presents an integrated view of economic growth, development traps, and economic geography. We explain why there is income convergence among some countries (neoclassical regime) and income divergence among others (poverty trap regime). Income convergence (divergence) and manufacturing industry diffusion (agglomeration) are re-enforcing each other in a cumulative process. Moreover, trade openness may trigger a catch-up process of an economy that is stuck in a \"poverty trap\". This catch-up is characterized by an increase in the investment-to-GDP ratio and an improvement of the terms of trade. A new dynamic welfare gain of trade liberalization is identified, which is likely to be large.

Suggested Citation

  • Dieter M. Urban, 2000. "Neoclassical Growth, Manufacturing Agglomeration and Terms of Trade," Development Working Papers 136, Centro Studi Luca d'Agliano, University of Milano.
    • Handle: RePEc:csl:devewp:136
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    File URL: https://www.dagliano.unimi.it/media/WP2000_136.pdf
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    References listed on IDEAS

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    1. T. N. Srinivasan & Jagdish Bhagwati, 2001. "Outward-Orientation and Development: Are Revisionists Right?," Palgrave Macmillan Books, in: Deepak Lal & Richard H. Snape (ed.), Trade, Development and Political Economy, chapter 1, pages 3-26, Palgrave Macmillan.
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    Cited by:

    1. Straubhaar, Thomas & Suhrcke, Marc & Urban, Dieter, 2002. "Divergence - Is it Geography?," Discussion Paper Series 26350, Hamburg Institute of International Economics.
    2. Baldwin, Richard E. & Martin, Philippe, 2004. "Agglomeration and regional growth," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 60, pages 2671-2711, Elsevier.

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    More about this item

    Keywords

    agglomeration; complementarities; convergence; dynamic trade theory; dynamic welfare gains of trade; poverty trap; terms of trade; trade liberalization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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