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Stages of diversification in a neoclassical world

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  • Batista, Catia
  • Potin, Jacques

Abstract

Recent research has documented a U-shaped industrial concentration curve over an economy’s development path. How far can neoclassical trade theory take us in explaining this pattern? We estimate the production side of the Heckscher–Ohlin model using industry data on 44 developed and developing countries for the period 1976–2000. Decomposing the implied changes in industrial concentration over time shows that at least one third of these changes seems to be explained by a Rybczynski effect. This result suggests that capital accumulation led poor countries to diversify their industrial production, while rich countries made their production more concentrated in highly capital-intensive industries.

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  • Batista, Catia & Potin, Jacques, 2014. "Stages of diversification in a neoclassical world," Economics Letters, Elsevier, vol. 122(2), pages 276-284.
    • Handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:276-284
    DOI: 10.1016/j.econlet.2013.12.010
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    More about this item

    Keywords

    Economic growth and International trade; Heckscher–Ohlin; Diversification; Specialization; Industrial concentration; Structural change;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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