Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/213810 
Year of Publication: 
2020
Series/Report no.: 
cege Discussion Papers No. 388
Publisher: 
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
Abstract: 
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.
Subjects: 
Big Push
multiple equilibria
backward linkages
international trade,globalisation
poverty trap
technology upgrading
monopolistic competition
JEL: 
F12
O14
F43
Document Type: 
Working Paper

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