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A Story of Trade-Induced Industrialization

  • Alan V. Deardorff

    (University of Michigan)

  • Jee-Hyeong Park

    (Seoul National University)

We offer a simple variant of the standard Heckscher-Ohlin Model that explains how a developing country, by opening to trade with a large capital-abundant economy, can be induced to shift resources into more capital-intensive production than what it was producing in autarky. As a result it experiences a rise in its return to capital and, if capital is internationally mobile, both an increase in its capital stock and an increase in trade. These results arise in a model in which both a traditional and a modern sector can produce final goods that are perfect substitutes. The modern sector uses intermediate inputs that differ in their relative capital intensities, while being both more capital intensive than the traditional sector. The results of this model accord well with the experience of the Asian Tiger economies during the early decades of their export-oriented industrialization.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 608.

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Length: 29 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:mie:wpaper:608
Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
Web page: http://fordschool.umich.edu/rsie/

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