Business Intelligence

Quality Ladders In A Ricardian Model Of Trade With Nonhomothetic Preferences

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Executive Summary

The literature on North-South trade has explored conditions under which international trade might magnify income disparities between the advanced North and the backward South. Little attention has yet been placed on the effect of trade on countries that do not display substantial dissimilarities concerning aggregate capital endowments. The authors show that even when no single country is technologically more advanced than any other one and productivity changes are uniform and identical in all countries, international trade may still be a source of income divergence when non-homothetic preferences and quality ladders are jointly taken into account.

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