Industrialisation and the big push in a global economy

Arbeitspapier

In this paper, we develop a multi-country open economy extension of the famous Big Push model for a closed economy by Murphy et al. (1989). We show under which conditions the global economy in our model is caught in a poverty trap, characterised by a low-income equilibrium from which an escape is possible (only) via a coordinated modernization effort across sectors and countries. We also analyze to what extent the degree of openness matters for the prospects of achieving the high-income equilibrium. We show that under monopolistic competition with CES preferences the openness to international trade does not affect the set of parameter combinations leading to a poverty trap, whereas international trade makes it more difficult to achieve industrialisation through a Big Push with continuum quadratic preferences. Responsible for this adverse outcome is the pro-competitive effect of opening up to international trade, which bites into firms' profit margins, rendering the adoption of a superior production technology unprofitable as it becomes more difficult for firms to amortise their adoption fixed costs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cege Discussion Papers ; No. 388

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Industrialization; Manufacturing and Service Industries; Choice of Technology ; Economic Growth of Open Economies
• Subject: Big Push ; multiple equilibria ; backward linkages ; international trade,globalisation ; poverty trap ; technology upgrading ; monopolistic competition

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kreickemeier, Udo ; Wrona, Jens
• Event: Veröffentlichung
• (who): University of Göttingen, Center for European, Governance and Economic Development Research (cege)
• (where): Göttingen
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/213810
• Last update: 10.03.2025, 11:44 AM CET