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Pattern of Trade and Economic Development in the Model of Monopolistic Competition

Author Info

Listed author(s):
  • Jeffrey D. Sachs
  • Xiaokai Yang
  • Dingsheng Zhang

Abstract

The paper introduces differences in production and transaction conditions between countries into the model of monopolistic competition to investigate the interplay between trade policies and development strategies. It applies inframarginal analysis, which is total benefit analysis between corner solutions in addition to marginal analysis of each corner solution, to show that as transaction conditions are improved, the general equilibrium may discontinuously jump across different patterns of trade and economic development. It compares the marginal and inframarginal comparative statics of equilibrium in the model of monopolistic competition with the core theorems in the neoclassical trade models and with conventional wisdom in development economics. It shows that as analytical framework is altered, the meanings of concepts and related empirical observations will be changed too.

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File URL: http://www.cid.harvard.edu/cidwp/pdf/014.pdf
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Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 14.

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Date of creation: Apr 1999
Handle: RePEc:wop:cidhav:14
Contact details of provider: Postal:
Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.

Phone: 617-495-4112
Fax: 617-496-8793Tertiary-Area:ecdev,intlecon
Web page: http://www.cid.harvard.edu/cidwp/
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More information through EDIRC

Keywords: trade pattern; development strategy; income distribution; terms of trade;

Other versions of this item:

Find related papers by JEL classification:
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
  • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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  1. Frye, Timothy & Shleifer, Andrei, 1997. "The Invisible Hand and the Grabbing Hand," American Economic Review, American Economic Association, vol. 87(2), pages 354-358, May.
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  3. Fujita, Masahisa & Krugman, Paul, 1995. "When is the economy monocentric?: von Thunen and Chamberlin unified," Regional Science and Urban Economics, Elsevier, vol. 25(4), pages 505-528, August.
  4. Sen, Partha, 1998. "Terms of Trade and Welfare for a Developing Economy with an Imperfectly Competitive Sector," Review of Development Economics, Wiley Blackwell, vol. 2(1), pages 87-93, February.
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  11. Cheng, W.L. & Sachs, J.D. & Yang, X., 1999. "An Inframarginal Analysis of the Heckscher-Olin Model with Transaction Costs and Technological Comparartive Advantage," Papers 9, Chicago - Graduate School of Business.
  12. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
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  16. Bruton, H.J., 1998. "A Reconsideration of Import Substitution," Center for Development Economics 156, Department of Economics, Williams College.
  17. Sonnenschein, Hugo, 1973. "Do Walras' identity and continuity characterize the class of community excess demand functions?," Journal of Economic Theory, Elsevier, vol. 6(4), pages 345-354, August.
  18. Xiaokai Yang & Yew-Kwang Ng, 2006. "Theory Of The Firm And Structure Of Residual Rights," World Scientific Book Chapters,in: Inframarginal Contributions To Development Economics, chapter 10, pages 231-258 World Scientific Publishing Co. Pte. Ltd..
  19. Balassa, Bela, 1989. "Outward orientation," Handbook of Development Economics,in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 31, pages 1645-1689 Elsevier.
  20. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
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  22. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185-185.
  23. repec:hrv:faseco:30725664 is not listed on IDEAS
  24. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
  25. Henry J. Bruton, 1998. "A Reconsideration of Import Substitution," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 903-936, June.
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Cited by:

  1. Cheng, Wenli & Yang, Xiaokai, 2004. "Inframarginal analysis of division of labor: A survey," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 137-174, October.
  2. Fan, C. Simon, 2004. "Quality, trade, and growth," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 271-291, October.

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