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Hysteresis in the Trade Pattern

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  • Gene M. Grossman
  • Elhanan Helpman

Abstract

We study a world economy comprising two countries that may differ only in their prior experience in the research lab. Entrepreneurs in each country develop new technologies for varieties of a differentiated product whenever expected profits justify up-front research costs. Research productivity depends upon national stocks of knowledge capital, which accumulate in proportion to local research activity. The countries produce and trade their unique varieties of the differentiated good, as well as a homogeneous, "traditional" product. In this context, we ask whether a country can overcome a late start in research to develop a comparative advantage in the high-technology sector. We also examine the welfare properties of the equilibrium trajectory and of policies that might be used to reverse a country's fate.

Suggested Citation

  • Gene M. Grossman & Elhanan Helpman, 1990. "Hysteresis in the Trade Pattern," NBER Working Papers 3526, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3526
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    1. Grossman, Gene M & Helpman, Elhanan, 1989. "Product Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1261-1283, December.
    2. Raymond Vernon, 1970. "The Technology Factor in International Trade," NBER Books, National Bureau of Economic Research, Inc, number vern70-1, January.
    3. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
    4. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, vol. 49(1), pages 229-256, April.
    5. Ronald Jones, 1970. "The Role of Technology in the Theory of International Trade," NBER Chapters, in: The Technology Factor in International Trade, pages 73-94, National Bureau of Economic Research, Inc.
    6. Ethier, Wilfred J, 1982. "Decreasing Costs in International Trade and Frank Graham's Argument for Protection," Econometrica, Econometric Society, vol. 50(5), pages 1243-1268, September.
    7. Frank D. Graham, 1923. "Some Aspects of Protection Further Considered," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 37(2), pages 199-227.
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    Cited by:

    1. Rauch, James E., 1997. "Balanced and unbalanced growth," Journal of Development Economics, Elsevier, vol. 53(1), pages 41-66, June.
    2. Laura M. Werner, 2020. "Hysteresis losses in the Preisach framework," Empirical Economics, Springer, vol. 58(3), pages 1249-1278, March.
    3. Francis Green & David Ashton, 1992. "Skill Shortage and Skill Deficiency: A Critique," Work, Employment & Society, British Sociological Association, vol. 6(2), pages 287-301, June.

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