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Economies of Scale, International Capital Mobility, and North-South Inequality

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  • Benarroch, Michael
  • Gaisford, James

Abstract

This paper develops a model of North-South trade with a continuum of goods, external economies of scale and international capital mobility. The North-South wage gap must exceed any difference in labor quality for South to overcome the established external economies in North. In equilibrium North retains the goods with the largest external economies and South specializes in the remaining goods. While Northern product innovation leads to the production of additional goods in South, it is possible for South to experience a terms-of-trade deterioration, a reduction in foreign investment, and an increase in wage and income inequality. Copyright 1997 by Blackwell Publishing Ltd.

Suggested Citation

  • Benarroch, Michael & Gaisford, James, 1997. "Economies of Scale, International Capital Mobility, and North-South Inequality," Review of International Economics, Wiley Blackwell, vol. 5(3), pages 412-428, August.
    • Handle: RePEc:bla:reviec:v:5:y:1997:i:3:p:412-28
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    Cited by:

    1. Milanovic, Branko, 2002. "Can we discern the effect of globalization on income distribution? evidence from household budget surveys," Policy Research Working Paper Series 2876, The World Bank.
    2. Branko Milanovic, 2005. "Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys," The World Bank Economic Review, World Bank, vol. 19(1), pages 21-44.
    3. Mikael Petitjean, 2000. "Les effets de la globalisation sur les inégalités régionales : quelques apports fondamentaux de l'économie géographique," Revue Tiers Monde, Programme National Persée, vol. 41(164), pages 775-790.

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