Pattern of Trade and Economic Development in the Model of Monopolistic Competition

J.D. Sachs and Xiaokai Yang

Working Papers from Chicago - Graduate School of Business

Abstract: The paper introduces differences in production and transaction conditions between countries into the model of monopolistic competition to investigate the interplay between trade policies and development strategies. It applies inframarginal analysis, which is total benefit analysis between corner solutions in addition to marginal analysis of each corner solution, to show that as transaction conditions are improved, the general equilibrium may discontinuously jump across different patterns of trade and economic development. It compares the marginal and inframarginal comparative statics of equilibrium in the model of monopolistic competition with the core theorems in the neoclassical trade models and with conventional wisdom in development economics. It shows that as analytical framework is altered, the meanings of concepts and related empirical observations will be changed too.

Keywords: TRADE; ECONOMIC DEVELOPMENT; INCOME DISTRIBUTION (search for similar items in EconPapers)
JEL-codes: F12 F13 O10 (search for similar items in EconPapers)
Date: 1999

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Working Paper: Pattern of Trade and Economic Development in the Model of Monopolistic Competition (1999)
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