Publication Type

Journal Article

Version

Preprint

Publication Date

2010

Abstract

Equilibrium in international trade with increasing returns in infrastructure depends on whether the infrastructure provider is " na?ve" or sophisticated. A monopolist produces infrastructure under decreasing cost using fixed equipment. Unlike similar work, we derive a unique closed-economy equilibrium. In a small open economy, with " na?ve" infrastructure provider(s), multiple equilibria obtain. The industrial export potential of the economy depends on unexhausted economies of scale, and equilibria are possible where manufactures are exported despite an autarky price higher than the world price. With a sophisticated infrastructure provider, even an open economy has a unique equilibrium, which, at least as long as economies of scale are unexhausted, also involves more industrialization than the " na?ve" equilibria. Access to the unlimited world market is necessary for significant industrialization but is not sufficient: one may also require " Schumpeterian" entrepreneurs, monopolists with a panoramic vision of the economy and of their catalytic role in it.

Keywords

economic growth, economy of scale, equilibrium, export, industrialization, infrastructural development, international trade, model, monopoly, theoretical study

Discipline

Growth and Development | International Economics

Research Areas

Financial Economics

Publication

Review of International Economics

Volume

17

Issue

5

First Page

1053-1065

ISSN

0965-7576

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