Trade Pattern and Economic Development when Endogenous and Exogenous Comparative Advantages Coexist
This paper applies the infra-marginal analysis, which is a combination of marginal and total cost-benefit analysis, to a model with both constant returns and increasing returns in production and with exogenous and endogenous comparative advantages. It demonstrates that as transaction conditions are improved, the general equilibrium discontinuously jumps from autarky to partial division of labor with a dual structure, then to the complete division of labor where dual structure disappears. Two types of dual structure may occur in the transitional stage of economic development and globalization. One of them involves the division of labor in the developed economy and autarky in the less developed economy, generating increasing disparity of per capita real income between the two types of economies. The other involves a domestic dual structure in the less developed economy, where the population is divided between commercialized sector which trades with foreign country and self-sufficient sector which is not involved in trade. All gains from trade go to the developed economy. This paper shows that deterioration of a country’s terms of trade may concur with an increase of gains that this country receives from trade provided productivity progress from an expanded network of division of labor outpaces the deterioration of terms of trade. In the model with both endogenous and exogenous comparative advantages, a country may exports a good with exogenous comparative disadvantage if endogenous comparative advantage dominates this exogenous comparative disadvantage.
|Date of creation:||Mar 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/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Din, Musleh-ud, 1996. "International Capital Mobility and Development Policy in a Dual Economy," Review of International Economics, Wiley Blackwell, vol. 4(2), pages 185-201, June.
- Robert C. Feenstra, .
"Integration Of Trade And Disintegration Of Production In The Global Economy,"
Department of Economics
98-06, California Davis - Department of Economics.
- Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
- Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
- Frye, Timothy & Shleifer, Andrei, 1997.
"The Invisible Hand and the Grabbing Hand,"
American Economic Review,
American Economic Association, vol. 87(2), pages 354-58, May.
- Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
- Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
- 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.
- Avinash Dixit, 1989. "Trade and Insurance with Adverse Selection," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 235-247.
- Dixit, Avinash, 1987. "Trade and insurance with moral hazard," Journal of International Economics, Elsevier, vol. 23(3-4), pages 201-220, November.
When requesting a correction, please mention this item's handle: RePEc:wop:cidhav:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.