Input substitutability,trade costs and the product cycle

Author's abstract. I exhibit a simple and realistic feature of technology and trade costs that influences the partition of manufacturing between the North and South depending on the degree of substitutability of internationally traded inputs in production. In the presence of higher wages in the North, when production of manufacturing goods requires tradeable, country-specific Ricardian inputs,goods with a low elasticity of substitution between inputs in production will have lower costs of manufacturing in the North and those with a high elasticity in the South.