Industrialisation and the big push in a global economy

Udo Kreickemeier and Jens Wrona

No 388, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: In this paper, we develop a multi-country open economy extension of the famous Big Push model for a closed economy by Murphy et al. (1989). We show under which conditions the global economy in our model is caught in a poverty trap, characterised by a low-income equilibrium from which an escape is possible (only) via a coordinated modernization effort across sectors and countries. We also analyze to what extent the degree of openness matters for the prospects of achieving the high-income equilibrium. We show that under monopolistic competition with CES preferences the openness to international trade does not affect the set of parameter combinations leading to a poverty trap, whereas international trade makes it more difficult to achieve industrialisation through a Big Push with continuum quadratic preferences. Responsible for this adverse outcome is the pro-competitive effect of opening up to international trade, which bites into firms' profit margins, rendering the adoption of a superior production technology unprofitable as it becomes more difficult for firms to amortise their adoption fixed costs.

Keywords: Big Push; multiple equilibria; backward linkages; international trade; globalisation; poverty trap; technology upgrading; monopolistic competition (search for similar items in EconPapers)
JEL-codes: F12 F43 O14 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Industrialisation and the Big Push in a Global Economy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cegedp:388

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