North-South Trade and Growth: The Role of Product Quality

Abstract

The traditional trade models, which rely on a comparative advantage based on regions’ technology or endowments, or the new trade theory, designed to explain trade between the countries at a similar level of development, fail to replicate recent evidence on world trade patterns and prices. This evidence reveals North-South specialization across products of the same industries and product groups but different quality, rather than across different industries. Furthermore, countries at a higher level of technological development have higher export prices, which shows that more advanced technology does not necessarily imply higher cost efficiency. Therefore, in order to analyze the endogenous growth mechanisms and implications of the IPR protection policy in a North-South trade set-up, this thesis develops a fully-endogenous theoretical framework based on the notion of quality vintages, which results in the North-South production and trade specialization in different quality segments of the market. The model is used to investigate the growth effects of the South opening to trade and the welfare effects of different IPR policy instruments. Finally, the last chapter abstracts from endogenous growth mechanisms