A Dynamic North-South Model of Demand-Induced Product Cycles
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.
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- Reto Foellmi & Josef Zweimuller, 2006.
"Income Distribution and Demand-Induced Innovations,"
Review of Economic Studies,
Oxford University Press, vol. 73(4), pages 941-960.
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- Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
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