Pattern of Trade and Economic Development in a Model of Monopolistic Competition

Authors: Sachs, Jeffrey¹; Yang, Xiaokai²; Zhang, Dingsheng³

Source: Review of Development Economics, Volume 6, Number 1, February 2002 , pp. 1-25(25)

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Abstract:

The paper introduces differences in production and transaction conditions between countries into a model of monopolistic competition. It applies inframarginal analysis to show that, as transaction conditions are improved, the general equilibrium may jump discontinuously across different patterns of trade and economic development. A country may export a good in which it has exogenous comparative disadvantage if its endogenous comparative advantage dominates this disadvantage. Countries will choose a trade and development pattern to utilize their net exogenous and endogenous comparative advantages in production as well as in transactions.

Document Type: Original article

DOI: http://dx.doi.org/10.1111/1467-9361.00136

Affiliations: 1: Center for International Development, Harvard University, USA, 2: Department of Economics, Monash University, Australia, 3: Institute for Advanced Economic Studies, Wuhan University, China

Publication date: 2002-02-01