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Pattern of Trade and Economic Development in a Model of Monopolistic Competition
Author(s) -
Sachs Jeffrey,
Yang Xiaokai,
Zhang Dingsheng
Publication year - 2002
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00136
Subject(s) - monopolistic competition , economics , disadvantage , comparative advantage , comparative statics , production (economics) , transaction cost , general equilibrium theory , database transaction , competition (biology) , endogenous growth theory , microeconomics , international economics , international trade , market economy , human capital , monopoly , computer science , ecology , artificial intelligence , programming language , biology
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.