Title:A Model of Innovation, Technology Transfer, and the World Distribution of Income
Author(s): Paul Krugman
Source: The Journal of Political Economy, Vol. 87, No. 2 (Apr., 1979), pp. 253-266
Published by: The University of Chicago Press
Abstract:
This paper develops a simple general-equilibrium model of product cycle trade. There are two countries, innovating North and nonin- novating South. Innovation consists of the development of new products. These can be produced at first only in North, but eventu- ally the technology of production becomes available to South. This technological lag gives rise to trade, with North exporting new prod- ucts and importing old products. Higher Northern per capita in- come depends on the quasi rents from the Northern monopoly of new products, so that North must continually innovate not only to maintain its relative position but even to maintain its real income in absolute terms.