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North–South Trade Liberalization and Economic Welfare
Author(s) -
Gilbert John,
Beladi Hamid,
Oladi Reza
Publication year - 2015
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/rode.12182
Subject(s) - economics , free trade , unemployment , general equilibrium theory , welfare , gains from trade , context (archaeology) , comparative advantage , liberalization , trade barrier , economic integration , distortion (music) , international economics , agriculture , applied general equilibrium , international trade , macroeconomics , market economy , paleontology , amplifier , ecology , cmos , electronic engineering , biology , engineering
We consider a general equilibrium model of a developing economy (the S outh) that opens to trade with a developed economy (the N orth). The southern economy is characterized by open urban unemployment and rural–urban migration, a competitive agricultural sector and a monopolistically competitive manufacturing sector. Hence, there is potential for both inter‐ and intra‐industry trade to arise on liberalization, in addition to distortionary effects of duality. Southern comparative advantage in agriculture may arise from the labor market distortion and the basis for intra‐industry trade is love for variety. We characterize various configurations of the trade pattern, and the resulting welfare consequences of opening to trade in this context. We illustrate a new mechanism under which in some circumstances it may be possible for trade liberalization to lower economic welfare in the South.