Richard E. Baldwin, Philippe Martin and Gianmarco I.P. Ottaviano ()
Richard E. Baldwin: Graduate Institute of International Studies, Geneva, Postal: 11 A Ave. de la Paix, CH-1202 Geneva Switzerland
Philippe Martin: Graduate Institute of International Studies, Geneva, and CERAS, Paris, Postal: 11A Ave. de la Paix, CH-1202 Geneva Switzerland
Gianmarco I.P. Ottaviano: University of Bologna and Louvain-la-Neuve
Abstract: This paper takes a step towards formalizing the theoretical interconnections among four post-Industrial Revolution phenomena - the industrialization and growth take-off of rich 'northern' nations, massive global income divergence, and rapid trade expansion. Specifically, we present a stages-of growth model in which the four phenomena are jointly endogenous and all are trigged by a gradual fall in the cost of doing business internationally. In the first stage, while trade costs are high, industry is dispersed and growth is low. In the second stage, the north industrializes rapidly, growth takes off and the south diverges. In the third stage, high growth becomes self sustaining. The model shows under which conditions, in a fourth stage, the south can quickly industrialize and converge.
45 pages, February 1, 1998
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