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A Dynamic North-South Model of Demand-Induced Product Cycles

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  • Foellmi, Reto

    ()

  • Hanslin, Sandra

    ()

  • Kohler, Andreas

    ()

Abstract

This paper presents a dynamic North-South general-equilibrium model where per capita incomes shape demand patterns across regions. Innovation takes place in a rich North while firms in a poor South imitate products manufactured in North. Allowing a role for per capita incomes in determining demand delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are not only determined by supply-side factors but also by the distribution of income between North and South. We analyze how changes in the gap between North and South due to changes in Southern labor productivity, population size in South and inequality across regions affect the international product cycle. In line with presented stylized facts, we predict a negative correlation between adoption time and per capita incomes.

Suggested Citation

  • Foellmi, Reto & Hanslin, Sandra & Kohler, Andreas, 2015. "A Dynamic North-South Model of Demand-Induced Product Cycles," Economics Working Paper Series 1504, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2015:04
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1504.pdf
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    References listed on IDEAS

    as
    1. Reto Foellmi & Josef Zweimuller, 2006. "Income Distribution and Demand-Induced Innovations," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 941-960.
    2. M. V. Posner, 1961. "International Trade And Technical Change," Oxford Economic Papers, Oxford University Press, vol. 13(3), pages 323-341.
    3. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, pages 223-250.
    4. 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.
    5. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-266, April.
    6. Robert C. Feenstra, 1997. "U.S. Exports, 1972-1994: With State Exports and Other U.S. Data," NBER Working Papers 5990, National Bureau of Economic Research, Inc.
    7. Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-1011, December.
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    Cited by:

    1. Andreas Kohler, 2012. "Trade and growth in an unequal global economy," ECON - Working Papers 081, Department of Economics - University of Zurich.

    More about this item

    Keywords

    International product cycles; Inequality; International trade;

    JEL classification:

    • F1 - International Economics - - Trade
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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