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Trade and development in a labor surplus economy

  • Barbier, Edward B.
  • Rauscher, Michael

This paper looks at a model in which two countries trade agricultural and manufactured commodities. The manufactured-goods sector produces with increasing returns to scale under conditions of monopolistic competition. It is shown that an increase in land endowment (or an increase in agricultural productivity) can have negative welfare implications for both countries. This outcome can result under three different scenarios: asymmetries across countries, i.e. a North-South model, a neoclassical labor market in the home country's instead of a Lewisian market, and alternative utility functions.

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Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 53.

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Date of creation: 2005
Date of revision:
Handle: RePEc:zbw:roswps:53
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  1. Burgstaller, A. & Saavedra-Rivano, N., 1984. "Capital mobility and growth in a North-South model," Journal of Development Economics, Elsevier, vol. 15(1-3), pages 213-237.
  2. Kiminori Matsuyama, 1990. "Agricultural Productivity, Comparative Advantage, and Economic Growth," Discussion Papers 934, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  4. Joseph Francois & Hans Van Meijl & Frank Van Tongeren, 2005. "Trade liberalization in the Doha Development Round," Economic Policy, CEPR;CES;MSH, vol. 20(42), pages 349-391, 04.
  5. Taylor, A.M., 1991. "Capital Flows to the New World as an Intergenerational Transfer," Harvard Institute of Economic Research Working Papers 1579, Harvard - Institute of Economic Research.
  6. Krugman, Paul, 1981. "Trade, accumulation, and uneven development," Journal of Development Economics, Elsevier, vol. 8(2), pages 149-161, April.
  7. Findlay, Ronald, 1992. "The Roots of Divergence: Western Economic History in Comparative Perspective," American Economic Review, American Economic Association, vol. 82(2), pages 158-61, May.
  8. Findlay, Ronald, 1980. "The Terms of Trade and Equilibrium Growth in the World Economy," American Economic Review, American Economic Association, vol. 70(3), pages 291-99, June.
  9. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  10. Edward B. Barbier, 2005. "Frontier Expansion and Economic Development," Contemporary Economic Policy, Western Economic Association International, vol. 23(2), pages 286-303, 04.
  11. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert Nicoud, 2003. "Economic Geography and Public Policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179815, HAL.
  12. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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