Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 488: Trade, Southern Integration, and Uneven Development

Georgi Trofimov
Additional contact information
Georgi Trofimov: The Institute for Financial Studies, Postal: Nagorny bulvar 4-1-64, 113186 Moscow, Russia

Abstract: The paper demonstrates how trade between developing countries can cause the divergence of long-run growth among these countries. The model describes two symmetric countries trading with each other and the industrial rest of the world. Bilateral trade occurs at any moment if the countries have different numbers of intermediate varieties. The country with a larger number produces more manufactured goods than the other country does. In the bilateral trade the advanced country exports manufactures and imports basic goods and can develop the comparative advantage over the other country. The model demonstrates that Southern integration leads to uneven development paths if there is a high complementarity between intermediate inputs.

Keywords: Trade; Intermediate inputs; Multiple equilibria

JEL-codes: F15; F43

32 pages, August 1, 1997

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