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Quality choice and specialization in North-South trade

Published online by Cambridge University Press:  17 August 2016

Luca Lambertini  and
Gianpaolo Rossini
Luca Lambertini
Affiliation:
Università degli Studi di Bologna
Gianpaolo Rossini
Affiliation:
Università degli Studi di Bologna
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Summary

We analyse trade in vertically differentiated goods between a rich and a poor country. In autarky two monopolists, selling a single product, operate in two countries which differ only for their per capita income. If trade opens, the firm operating in the poor country exports to the rich, giving rise to one-way trade. Cconsumers of the rich country and the firm of the poor country benefit from trade. Liberalization may hurt the consumers in the poor country if their per capita income is quite low vis à vis the one of the rich country. Trade in vertically differentiated goods brings about an overall gain if countries are quite far apart in terms of standard of living. Real wages increase in both countries as a result of trade, but relatively more in the rich country. As a remedy to the trade deficit, the rich country may set an import reducing tariff that, only under certain conditions, may benefit also the firm of the poor country and increase total welfare.

Résumé

Résumé

Nous analysons le commerce de biens verticalement différenciés entre un pays riche et un pays pauvre. En autarcie, on aurait deux monopolistes qui vendent un seul produit mais qui opèrent dans des pays qui ne diffèrent que par leur revenu pro capita. Si on ouvre les frontières, la firme du pays pauvre exportera vers le pays riche (et pas l'inverse). Les consommateurs du pays riche et la firme du pays pauvre en bénéficieront. La libéralisation peut nuire aux consommateurs du pays pauvre si leur revenu pro capita est relativement bas par rapport à celui du pays riche. Le commerce de biens verticalement différenciés apporterait un gain général si les consommateurs ont un niveau de vie assez différentes. Les salaires réels augmentent dans les deux pays suite au commerce, mais relativement plus dans le pays riche. Un tarif d'importation peut réduire le déficit commercial et peut sous certaines conditions également profiter à la firme et au bien-être total du pays pauvre.

Keywords

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Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 64 , Issue 4 , 1998 , pp. 383 - 406
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1998 

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Footnotes

*

We thank two anonymous referees for helpful comments and suggestions. The usual disclaimer applies. We acknowledge the financial support by MURST under the 60% scheme at the University of Bologna.

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