Pattern of Trade and Economic Development in the Model of Monopolistic Competition
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.
|Date of creation:||Apr 1999|
|Date of revision:|
|Contact details of provider:|| Postal: Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.|
Web page: http://www.cid.harvard.edu/cidwp/
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- Wen Li Cheng & Jeffrey D. Sachs & Xiaokai Yang, 1999.
"An Inframarginal Analysis of the Heckscher-Olin Model with Transaction Costs and Technological Comparative Advantage,"
CID Working Papers
9, Center for International Development at Harvard University.
- 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.
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986, University of California, Davis, Department of Economics.
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"The Invisible Hand and the Grabbing Hand,"
NBER Working Papers
5856, National Bureau of Economic Research, Inc.
- Bruton, H.J., 1998. "A Reconsideration of Import Substitution," Center for Development Economics 156, Department of Economics, Williams College.
- Easton, Stephen T & Walker, Michael A, 1997. "Income, Growth, and Economic Freedom," American Economic Review, American Economic Association, vol. 87(2), pages 328-32, May.
- 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.
- Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
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