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

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  • Föllmi, Reto
  • Hanslin, Sandra
  • Kohler, Andreas

Abstract

This paper presents a dynamic North-South general equilibrium model with non- homothetic preferences. Innovation takes place in the rich North while firms in the poor South at random imitate products manufactured in the North. The model is able to generate endogenous product cycles 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 simulate comparative statics results of changes in Southern labor productivity, changes in inequality across regions, and changes in the savings rate. We further provide suggestive evidence for the product cycle stages.

Suggested Citation

  • Föllmi, Reto & Hanslin, Sandra & Kohler, Andreas, 2012. "A Dynamic North-South Model of Demand-Induced Product Cycles," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62023, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc12:62023
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    Cited by:

    1. Föllmi, Reto & Fuest, Angela & an de Meulen, Philipp & Micheli, Martin & Schmidt, Thorsten & Zwick, Lisa, 2018. "Openness and Productitvity of the Swiss Economy," Economics Working Paper Series 1803, University of St. Gallen, School of Economics and Political Science.
    2. 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

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F10 - International Economics - - Trade - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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