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Stages of Diversification in a Neoclassical World

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  • Batista, Catia

    (Nova School of Business and Economics)

  • Potin, Jacques

    (ESSEC Business School)

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.

Suggested Citation

  • Batista, Catia & Potin, Jacques, 2013. "Stages of Diversification in a Neoclassical World," IZA Discussion Papers 7765, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp7765
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    More about this item

    Keywords

    specialization; diversification; Heckscher-Ohlin; economic growth and international trade; 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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