Vertical Product Differentiation and North-South Trade

Harry Flam and Elhanan Helpman

American Economic Review, 1987, vol. 77, issue 5, 810-22

Abstract: The authors study international trade between the North and the South where the industrial sector produces goods of different quality. The North exports high-quality products, the South low-quality products. Faster population growth in the South changes the spectrum of products exported by every country, and so does faster technical progress in the southern industrial sector. The latter leads also to the introduction of new high-quality products and the abandonment of old low-quality products. In all cases, there is a product cycle; the North abandons the production of its lowest-quality products which are subsequently produced in the South. Copyright 1987 by American Economic Association.

Date: 1987
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