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Geography, Non-Homotheticity, and Industrialization: A Quantitative Analysis

Breinlich, Holger and Cuñat, Alejandro (2012) Geography, Non-Homotheticity, and Industrialization: A Quantitative Analysis. Working Paper. CESifo Working Paper series 3927.

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We propose a quantitative framework for the analysis of industrialization in which specialization in manufacturing or agriculture is driven by comparative advantage and non-homothetic preferences. Countries are integrated through trade but trade is not costless and geographic position matters. We use a number of analytical examples and a multi-country calibration to explain two important empirical regularities: (i) there is a strong positive cor-relation between proximity to large markets and levels of manufacturing activity; (ii) there is a positive correlation between the ratio of agricultural to manufacturing productivity and shares of manufacturing in GDP. Our calibrated model replicates these facts and also provides a better fit to cross-sectional data on manufacturing shares than frameworks which ignore the role of trade costs or non-homotheticity. We use the calibrated model to quantitatively ana-lyze the effect of increases in agricultural productivity and a further lowering of trade barriers.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: industrialization; economic geography; international trade
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 06 Mar 2013 15:27
Last Modified: 06 Mar 2013 15:27

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