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Technical progress in North and welfare gains in South under nonhomothetic preferences

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  • Lilas Demmou

    (PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

The paper proposes a theoretical model investigating the welfare consequences of technological shocks in a Ricardian framework (a la Dornbush, Fisher and Samuelson, 1977). Contrary to existing literature, the model incorporates a nonhomothetic demand function whose price and income elasticities are endogenously determined by technology. The model is applied to the case of trade between two economies with different development levels. It is shown in particular that the developing country can experience a fall in utility as a result of technical progress in the developed country. This result depends on the type of technological shock assumed (biased vs uniform technical progress), as well as on the size of the development gap.

Suggested Citation

  • Lilas Demmou, 2007. "Technical progress in North and welfare gains in South under nonhomothetic preferences," PSE Working Papers halshs-00588310, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00588310
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00588310
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    References listed on IDEAS

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