A Schumpeterian Model of the Product Life Cycle

Abstract

This paper presents a dynamic general equilibrium model of North-South trade in which research and development races between firms determine the rate of product innovation in the North. Tariffs designed to protect dying industries in the North from Southern competition reduce the steady-state number of dominant firms in the North, reduce the rate of product innovation, and increase the relative wage of Northern workers. Copyright 1990 by American Economic Association.