TY  - JOUR
AU  - Grossman,Gene M.
AU  - Helpman,Elhanan
TI  - Hysteresis in the Trade Pattern
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3526
PY  - 1990
Y2  - December 1990
UR  - http://www.nber.org/papers/w3526
L1  - http://www.nber.org/papers/w3526.pdf
N1  - Author contact info:
Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu

Elhanan Helpman
Department of Economics
Harvard University
1875 Cambridge Street
Cambridge, MA 02138
Tel: 617-495-4690
Fax: 617-495-7730
E-Mail: ehelpman@harvard.edu
AB  - We study a world economy comprising two countries that may differ only in their prior experience in the research lab. Entrepreneurs in each country develop new technologies for varieties of a differentiated product whenever expected profits justify up-front research costs. Research productivity depends upon national stocks of knowledge capital, which accumulate in proportion to local research activity. The countries produce and trade their unique varieties of the differentiated good, as well as a homogeneous, "traditional" product. In this context, we ask whether a country can overcome a late start in research to develop a comparative advantage in the high-technology sector. We also examine the welfare properties of the equilibrium trajectory and of policies that might be used to reverse a country's fate.
ER  -