Pattern Trade and Economic Development in a Model of Monopolistic Competition

Jeffrey Sachs, Xiaokai Yang and Dingsheng Zhang

Review of Development Economics, 2002, vol. 6, issue 1, pages 1-25

Abstract: The paper introduces differences in production and transaction conditions between countries into a model of monopolistic competition. It applies inframarginal analysis to show that, as transaction conditions are improved, the general equilibrium may jump discontinuously across different patterns of trade and economic development. A country may export a good in which it has exogenous comparative disadvantage if its endogenous comparative advantage dominates this disadvantage. Countries will choose a trade and development pattern to utilize their net exogenous and endogenous comparative advantages in production as well as in transactions. Copyright 2002 by Blackwell Publishing Ltd

Date: 2002

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