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A dynamic North-South model of demand-induced product cycles

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  • Reto Foellmi
  • Dr. Sandra Hanslin Grossmann
  • Andreas Kohler

Abstract

This paper presents a dynamic North-South general-equilibrium model where households have non-homothetic preferences. Innovation takes place in a rich North while firms in a poor South imitate products manufactured in the North. Introducing non-homothetic preferences delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are determined not only by supply side factors but also by the distribution of income between North and South. We ask how changes in Southern labour productivity, population size in the South and inequality across regions affect the international product cycle. In line with presented stylised facts about the product cycle we predict a negative correlation between adoption time and per capita incomes.

Suggested Citation

  • Reto Foellmi & Dr. Sandra Hanslin Grossmann & Andreas Kohler, 2015. "A dynamic North-South model of demand-induced product cycles," Working Papers 2015-04, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2015-04
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    Cited by:

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    3. Kiminori Matsuyama, 2019. "Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade," Econometrica, Econometric Society, vol. 87(2), pages 497-528, March.
    4. Fukuda, Katsufumi, 2019. "Effects of trade liberalization on growth and welfare through basic and applied researches," Journal of Macroeconomics, Elsevier, vol. 62(C).
    5. Prince Jaiblai & Vijay Shenai, 2019. "The Determinants of FDI in Sub-Saharan Economies: A Study of Data from 1990–2017," IJFS, MDPI, vol. 7(3), pages 1-31, August.
    6. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," CID Working Papers 130a, Center for International Development at Harvard University.
    7. Ardelean, Adina & Lugovskyy, Volodymyr, 2019. "Tariffs, product quality, and the relative prices of durables: Evidence from 1989 to 2009 U.S. microdata," European Economic Review, Elsevier, vol. 114(C), pages 54-75.
    8. Andreas Kohler, 2012. "Trade and growth in an unequal global economy," ECON - Working Papers 081, Department of Economics - University of Zurich.

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    More about this item

    Keywords

    Product cycles; Inequality; International trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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