A dynamic North-South model of demand-induced product cycles
This paper presents a dynamic North-South general-equilibrium model where households have non-homothetic preferences. Innovation takes place in a rich North while firms in a poor South imitate products manufactured in the North. Introducing non-homothetic preferences delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are determined not only by supply side factors but also by the distribution of income between North and South. We ask how changes in Southern labour productivity, population size in the South and inequality across regions affect the international product cycle. In line with presented stylised facts about the product cycle we predict a negative correlation between adoption time and per capita incomes.
|Date of creation:||2015|
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- Reto Foellmi & Josef Zweimuller, 2006.
"Income Distribution and Demand-Induced Innovations,"
Review of Economic Studies,
Oxford University Press, vol. 73(4), pages 941-960.
- Reto Foellmi & Josef Zweimï¿½ller, "undated". "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
- Foellmi, Reto & Zweimüller, Josef, 2005. "Income Distribution and Demand-Induced Innovations," CEPR Discussion Papers 4985, C.E.P.R. Discussion Papers.
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- Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
- Philip R. Lane & Gian M Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II; Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004," IMF Working Papers 06/69, International Monetary Fund.
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- M. V. Posner, 1961. "International Trade And Technical Change," Oxford Economic Papers, Oxford University Press, vol. 13(3), pages 323-341.
- Vernon, Raymond, 1979. "The Product Cycle Hypothesis in a New International Environment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(4), pages 255-267, November. Full references (including those not matched with items on IDEAS)
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