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A Many-Country Model of Industrialization

Author

Listed:
  • Holger Breinlich
  • Alejandro Cuñat
Abstract
We draw attention to the role of economic geography in explaining important cross-sectional facts which are difficult to account for in existing models of industrialization. By construction, closed-economy models that stress the role of local demand in generating sufficient expenditure on manufacturing goods are not suited to explain the strong and negative correlation between distance to the world's main markets and levels of manufacturing activity in the developing world. Secondly, open-economy models that emphasize the importance of comparative advantage are at odds with a positive correlation between the ratio of agricultural to manufacturing productivity and shares of manufacturing in GDP. This paper provides a potential explanation for these puzzles by nesting the above theories in a multi-location model with trade costs. Using a number of simple analytical examples and a full-scale multi-country calibration, we show that the model can replicate the above stylized facts.

Suggested Citation

  • Holger Breinlich & Alejandro Cuñat, 2011. "A Many-Country Model of Industrialization," CEP Discussion Papers dp1082, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1082
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Industrialization; economic geography; international trade;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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