A Many-Country Model of Industrialization

Holger Breinlich and Alejandro Cunat

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We draw attention to the role of economic geography in explaining important cross-sectional facts which are difficult to account for in existing models of industrialization. By construction, closed-economy models that stress the role of local demand in generating sufficient expenditure on manufacturing goods are not suited to explain the strong and negative correlation between distance to the world's main markets and levels of manufacturing activity in the developing world. Secondly, open-economy models that emphasize the importance of comparative advantage are at odds with a positive correlation between the ratio of agricultural to manufacturing productivity and shares of manufacturing in GDP. This paper provides a potential explanation for these puzzles by nesting the above theories in a multi-location model with trade costs. Using a number of simple analytical examples and a full-scale multi-country calibration, we show that the model can replicate the above stylized facts.

Keywords: Industrialization; economic geography; international trade (search for similar items in EconPapers)
JEL-codes: F11 F12 F14 O14 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-opm
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Related works:
Working Paper: A Many-Country Model of Industrialization (2011)
Working Paper: A many-country model of industrialization (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1082

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