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Uneven Development and Bilateral Conflict
Author(s) -
Skott Peter,
Sethi Rajiv
Publication year - 2000
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/1467-999x.00097
Subject(s) - leapfrogging , economics , convergence (economics) , welfare , phenomenon , dynamics (music) , general equilibrium theory , international economics , macroeconomics , market economy , economic growth , physics , quantum mechanics , acoustics
We consider the dynamics of bilateral conflict within the framework of a standard two‐country, two‐sector model of international trade with increasing returns in one sector. Free trade leads to asymmetric equilibria among otherwise identical countries and, in some circumstances, to uneven development in the sense of persistent disparities in wages, income and welfare. In the latter case, distortionary industrial policy by the less developed country may be welfare enhancing. When the dynamics of policy change are endogenized, the model gives rise to periodic changes in industrial leadership or leapfrogging. Implications of this phenomenon for the empirical literature on convergence are discussed.