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A Dynamic North-South Model of Demand-Induced Product Cycles

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  • Foellmi, Reto
  • Hanslin, Sandra
  • Kohler, Andreas

Abstract

This paper presents a dynamic North-South general-equilibrium model where per capita incomes shape demand patterns across regions. Innovation takes place in a rich North while firms in a poor South imitate products manufactured in North. Allowing a role for per capita incomes in determining demand delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are not only determined by supply-side factors but also by the distribution of income between North and South. We analyze how changes in the gap between North and South due to changes in Southern labor productivity, population size in South and inequality across regions affect the international product cycle. In line with presented stylized facts, we predict a negative correlation between adoption time and per capita incomes.

Suggested Citation

  • Foellmi, Reto & Hanslin, Sandra & Kohler, Andreas, 2015. "A Dynamic North-South Model of Demand-Induced Product Cycles," Economics Working Paper Series 1504, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2015:04
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    2. Lin, Kefu & Zeng, Dao-Zhi, 2023. "International trade with binary preferences and heterogeneous productivity," Economic Modelling, Elsevier, vol. 122(C).
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    4. 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.
    5. 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.
    6. Fukuda, Katsufumi, 2019. "Effects of trade liberalization on growth and welfare through basic and applied researches," Journal of Macroeconomics, Elsevier, vol. 62(C).
    7. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," Growth Lab Working Papers 171, Harvard's Growth Lab.
    8. 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.
    9. 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.
    10. 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

    International 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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