Working Paper: CEPR ID: DP1782
Authors: Diego Puga; Anthony J. Venables
Abstract: This paper analyses a model of economic development in which international inequalities in the location of industry and income are supported by the agglomeration of industry in a subset of countries. Economic development may not be a gradual process of convergence by all countries, but instead involves countries moving sequentially from the group of poor countries to the group of rich countries. The role of trade policy in promoting industrialization is studied. While both import substitution and unilateral trade liberalization may be ?successful? in attracting industry, they attract different sectors and welfare levels are higher under trade liberalization.
Keywords: import substitution; trade liberalization; agglomeration; linkages
JEL Codes: F12; O14; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| agglomeration of industry (R32) | higher wages and income levels (J31) |
| higher wages and income levels (J31) | industry spills over into lower-wage economies (F66) |
| trade policy (F13) | industrialization (O14) |
| import substitution (C60) | attracting industry (R38) |
| trade liberalization (F13) | attracting industry (R38) |
| trade liberalization (F13) | higher welfare (I31) |
| trade liberalization (F13) | reduces costs for firms (D21) |
| trade liberalization (F13) | enhances competitiveness in the market (L10) |
| trade liberalization (F13) | industrialization (O14) |