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Beyond Icebergs: Modeling Globalization as Biased Technical Change

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  • Kiminori Matsuyama

Abstract

We propose a new approach to model costly international trade, which includes the standard approach, the “iceberg” transport cost, as a special case. The key idea is to make the technologies of supplying the good depend on the destination of the good. To demonstrate our approach, we extend the Ricardian model with a continuum of goods, due to Dornbusch, Fischer and Samuelson (1977), by introducing multiple factors of production and by making each industry consist of the domestic division, which supplies the good at home, and the export division, which supplies the good abroad. If the two divisions differ only in the total factor productivity, our model becomes isomorphic to the DFS model with the iceberg transport cost. When the two divisions differ also in the factor intensity, globalization changes the relative factor prices in the same direction across the countries, in sharp contrast to the usual Stolper-Samuelson effect, which suggests that the relative factor prices move in different directions in different countries.

Suggested Citation

  • Kiminori Matsuyama, 2004. "Beyond Icebergs: Modeling Globalization as Biased Technical Change," Discussion Papers 1390, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1390
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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
    2. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    3. repec:hrv:faseco:4784029 is not listed on IDEAS
    4. 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 823-839, December.
    5. J. R. Hicks, 1953. "An Inaugural Lecture," Oxford Economic Papers, Oxford University Press, vol. 5(2), pages 117-135.
    6. H. Uzawa, 1961. "Neutral Inventions and the Stability of Growth Equilibrium," Review of Economic Studies, Oxford University Press, vol. 28(2), pages 117-124.
    7. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    8. Mathias Thoenig & Thierry Verdier, 2003. "A Theory of Defensive Skill-Biased Innovation and Globalization," American Economic Review, American Economic Association, vol. 93(3), pages 709-728, June.
    9. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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