Industrial development and international trade : technological capabilities and collusion
This thesis presents a theoretical analysis of industrialization. Two kinds of models are developed. The first type incorporates the following features: 1) Oligopohstic behaviour and strategic interaction. 2) Endogenous technological capability and market structure. 3) A general equilibrium framework. 4) A dualistic structure (characteristic of many developing countries). 5) Asymmetries in initial conditions. In part I, chapter 2 develops the benchmark model in autarky. Chapter 3 opens the economy. Under symmetry, trade is welfare improving. Asymmetric initial conditions imply that a backward nation may not benefit from trade with an advanced country, while the advanced nation will always benefit from trade with the backward nation. Subsidizing technological capability allows the backward economy to catch-up with the advanced economy's wage. The subsidy is welfare improving if funded with a lump-sum tax. In part II we extend the models from part I to variable intensity of competition. Chapter 4 does this for autarky, chapter 5 for the open economy. We encompass intensities of competition ranging from individual to joint profit maximization. In the open economy, intensities of competition lower than individual profit maximization generate a separating surface for the wage rate. Below the surface, trade yields a higher wage rate than autarky (the reverse holds above the surface). The separating surface provides a positive basis for differential trade policy between industries. The second type of model (chapter 6) is a Big-Push framework with multiple equilibria, and industrialization refers to the transition between these. A Cournot (upstream) industry features endogenous technological capability and vertical linkages to a competitive (downstream) industry. The wage rate depends on whether the economy can fit through a 'window of opportunity' whilst on the transition path. One of the central results is that if the wage rate grows too steeply, the window will be missed and the economy may end up in a lower (post transition) level of development.