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Trade, demand spillovers, and industrialization : the emerging global middle class in perspective

Will the integration of BRIC (Brazil, Russia, India and China) into the global economy provide the biggest boost to the world economy since the industrial revolution ? In this paper, we investigate international demand spillovers brought about by an emerging global middle class and their impact on the international structure of production. We put forth a many-industry and two-country trade model featuring international competition, non-homothetic preferences and country-specific asymmetries in income distribution, productivity and population size. Its key characteristic is the introduction of demand complementarities propagating increasing returns across industries and national boundaries, which eventually translate into a global profit-multiplier.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2006/V06014.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06014a.

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Length: 39 pages
Date of creation: Feb 2006
Date of revision: Jul 2007
Handle: RePEc:mse:wpsorb:v06014a
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  1. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  2. Vitor Trindade & Muhammed Dalgin & Devashish Mitra, 2006. "Inequality, Nonhomothetic Preferences, And Trade: A Gravity Approach," Working Papers 0606, Department of Economics, University of Missouri, revised 08 May 2006.
  3. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 537-64, August.
  4. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June.
  5. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-68, September.
  6. Melitz, Marc, 2005. "When and How Should Infant Industries Be Protected?," Scholarly Articles 3228378, Harvard University Department of Economics.
  7. Pundarik Mukhopadhaya, 2004. "World Income Inequality data base (WIID) Review," Journal of Economic Inequality, Springer, vol. 2(3), pages 229-234, December.
  8. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632, October.
  9. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  10. Foellmi, Reto & Zweimüller, Josef, 2005. "Income Distribution and Demand-Induced Innovations," CEPR Discussion Papers 4985, C.E.P.R. Discussion Papers.
  11. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September.
  12. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-26, October.
  13. Francois, Joseph F & Kaplan, Seth, 1996. "Aggregate Demand Shifts, Income Distribution, and the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 244-50, May.
  14. Devashish Mitra & Vitor Trindade, 2003. "Inequality and Trade," NBER Working Papers 10087, National Bureau of Economic Research, Inc.
  15. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier.
  16. Solow, Robert M., 2005. "Reflections on Growth Theory," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 0, pages 3-10 Elsevier.
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