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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. 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.
  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. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Melitz, Marc, 2005. "When and How Should Infant Industries Be Protected?," Scholarly Articles 3228378, Harvard University Department of Economics.
  5. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
  6. Reto Foellmi & Josef Zweimuller, 2006. "Income Distribution and Demand-Induced Innovations," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 941-960.
  7. Murphy, Kevin M. & Shleifer, Andrei & Vishny, Robert W., 1989. "Industrialization and the Big Push," Scholarly Articles 3606235, Harvard University Department of Economics.
  8. 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.
  9. 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.
  10. Pundarik Mukhopadhaya, 2004. "World Income Inequality data base (WIID) Review," Journal of Economic Inequality, Springer, vol. 2(3), pages 229-234, December.
  11. Devashish Mitra & Vitor Trindade, 2005. "Inequality and trade," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1253-1271, November.
  12. 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.
  13. 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.
  14. L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632, September.
  15. 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.
  16. 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.
  17. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September.
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