Chapter

Trade and Development

Pranab Bardhan and Christopher Udry

in Development Microeconomics

Published in print May 1999 | ISBN: 9780198773719
Published online November 2003 | e-ISBN: 9780191595929 | DOI: http://dx.doi.org/10.1093/0198773714.003.0014
 Trade and Development

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Starts with an illustration of the effect of growth on the terms of trade between a rich and a poor country, using a simple comparative‐static framework. Next, we study the pro‐competitive effects of trade liberalization in inputs with a model in which an import‐substituting upstream industry supplies an intermediate good to the producers of the final good. With imperfect competition and scale economies among upstream firms, the model has multiple equilibria, and trade liberalization may trigger an expansion to the higher output equilibrium. The next section is about the effects of trade on economic development as analyzed in endogenous growth theory, with its focus on learning‐by‐doing, dynamic learning spillovers, and trade‐induced technological patterns in growth. This section includes a model of North–South trade that endogenizes comparative advantage and the direction of technological specialization.

Keywords: imperfect competition; import substitution; learning spillovers; learning‐by‐doing; North –South Trade; scale economies; technological change; terms‐of‐trade; trade liberalization

Chapter.  6033 words.  Illustrated.

Subjects: Economic Development and Growth

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