Capabilities, wealth, and trade

John Sutton and Daniel Trefler

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We explore the relation between a country’s income and the mix of products it exports. Both are simultaneously determined by countries’ capabilities, that is, by countries’ productivity and quality levels for each good. Our theoretical setup has two features. (1) Some goods have fewer high-quality producers/countries than others, meaning that there is comparative advantage. (2) Imperfect competition allows high- and low-quality producers to coexist. These two features generate an inverted-U, general equilibrium relationship between a country’s export mix and its GDP per capita. We show that this inverted-U permeates the international data on trade and GDP per capita.

JEL-codes: N0 (search for similar items in EconPapers)
Date: 2016-05-06
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Citations: View citations in EconPapers (40)

Published in Journal of Political Economy, 6, May, 2016, 124(3), pp. 826-878. ISSN: 0022-3808

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Related works:
Journal Article: Capabilities, Wealth, and Trade (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:90484

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