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Developing Countries Growth and Developed Country Response

Author

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  • Deardorff, A.V.

Abstract

This paper makes a theoretical argument that growth in developing countries is likely to worsen the income distribution in developed countries and lead to a protectionist response that undermines the incentives for developing country growth. The model for this purpose is the two-cone version of the Heckscher-Ohlin (HO) trade model, in which countries have different factor prices even with free trade and in which they produce mostly different groups of goods. In that model, unlike the HO model with factor price equalization, growth by the poor country expands the output of its capital-intensive good, which is also the labor-intensive good of the other country. Regardless of whether factors are mobile or immobile across sectors, this reduces the real wages of factors that are either intensive or specific in the labor-intensive sector of the rich country. The paper argues that this will then lead to the rich country restricting trade. This in turn will lower the return to capital in the poor country and reduce the incentive for further growth.

Suggested Citation

  • Deardorff, A.V., 2000. "Developing Countries Growth and Developed Country Response," Working Papers 462, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:462
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    Cited by:

    1. Ariyasajjakorn, Danupon & Gander, James P. & Ratanakomut, Somchai & Reynolds, Stephen E., 2009. "ASEAN FTA, distribution of income, and globalization," Journal of Asian Economics, Elsevier, vol. 20(3), pages 327-335, May.

    More about this item

    Keywords

    TRADE ; ECONOMIC GROWTH ; INCOME DISTRIBUTION;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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