A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade

Kiminori Matsuyama

Journal of Political Economy, 2000, vol. 108, issue 6, 1093-1120

Abstract: This paper develops a Ricardian model of trade in which goods are indexed according to priority and higher-indexed goods are consumed only by richer households. South (North) has a comparative advantage in lower- (higher-) indexed goods and, hence, specializes in goods with lower (higher) income elasticities of demand. Product cycles and a southern terms-of-trade deterioration result from faster population growth and uniform productivity growth in South and a global productivity improvement. South's domestic income redistribution policy can improve its terms of trade so much that every household in South may be better off, at the expense of North.

Date: 2000
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Working Paper: A Ricardian Model with a Continuum of Goods under Non-homothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:108:y:2000:i:6:p:1093-1120

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