DP5887 North-South Trade and Economic Growth

Author(s): Elias Dinopoulos, Paul Segerstrom
Publication Date: October 2006
Keyword(s): economic growth, globalization, North-South trade, trade costs, welfare
JEL(s): F12, F43, O31, O34
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5887

This paper develops a dynamic general equilibrium model of North-South trade and economic growth. Both innovation and imitation rates are endogenously determined as well as the degree of wage inequality between Northern and Southern workers. Northern firms devote resources to innovative R&D to discover higher quality products and Southern firms devote resources to imitative R&D to copy state-of-the-art quality Northern products. The steady-state equilibrium and welfare implications of three aspects of globalization are studied: increases in the size of the South (i.e., countries like China joining the world trading system), stronger intellectual property protection (i.e., the TRIPs agreement that was part of the Uruguay Round) and lower trade costs.