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A Story of Trade-induced Industrialization

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  • Alan Deardorff
  • Jee-Hyeong Park

Abstract

We offer a simple variant of the standard Heckscher-Ohlin Model that explains how a developing country, by opening up to trade with a large capital-abundant economy, can be induced to shift resources into more capital-intensive production than that which it was producing in autarky. As a result, it experiences a rise in its return to capital and, if capital is internationally mobile, both an increase in its capital stock and an increase in trade. These results arise in a model in which both a traditional and a modern sector can produce final goods that are perfect substitutes. The modern sector uses intermediate inputs that differ in their relative capital intensities, while being both more capital intensive than the traditional sector. The results of this model accord well with the experience of the Asian Tiger economies during the early decades of their export-oriented industrialization.

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  • Alan Deardorff & Jee-Hyeong Park, 2010. "A Story of Trade-induced Industrialization," International Economic Journal, Taylor & Francis Journals, vol. 24(3), pages 283-296.
    • Handle: RePEc:taf:intecj:v:24:y:2010:i:3:p:283-296
    DOI: 10.1080/10168737.2010.503457
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    References listed on IDEAS

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    1. Davis, Donald, 1996. "Trade Liberalization And Income Distribution," Harvard Institute for International Development (HIID) Papers 294371, Harvard University, Kennedy School of Government.
    2. Donald R. Davis, 1996. "Trade Liberalization and Income Distribution," NBER Working Papers 5693, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Marjan Petreski & Branimir Jovanovic & Igor Velickovski, 2017. "Tariff-Induced (De)industrialization: An Empirical Analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(3), pages 345-381, September.
    2. Teignier, Marc, 2018. "The role of trade in structural transformation," Journal of Development Economics, Elsevier, vol. 130(C), pages 45-65.
    3. Branimir Jovanović & Marjan Petreski & Igor Velickovski, 2015. "Tariff-induced (de)industrialization in transition economies: A comparative analysis," wiiw Balkan Observatory Working Papers 116, The Vienna Institute for International Economic Studies, wiiw.

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    More about this item

    Keywords

    Industrialization; trade; intermediate inputs; Heckscher-Ohlin Model; Asian Tiger economies;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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