Pattern of Trade and Economic Development in a Model of Monopolistic Competition |
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| Authors: | Jeffrey Sachs,Xiaokai Yang,& Dingsheng Zhang |
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| Affiliation: | Center for International Development, Harvard University, USA,;Department of Economics, Monash University, Australia,;Institute for Advanced Economic Studies, Wuhan University, China |
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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. |
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