Industrialisation and the Big Push in a Global Economy

28 Pages Posted: 13 Jun 2017

See all articles by Udo Kreickemeier

Udo Kreickemeier

University of Tuebingen; CESifo (Center for Economic Studies and Ifo Institute); University of Goettingen (Göttingen) - Faculty of Economics and Business Administration

Jens Wrona

University of Tuebingen - Faculty of Economics and Social Sciences

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Date Written: May 23, 2017

Abstract

In their famous paper on the “Big Push”, Murphy, Shleifer, and Vishny (1989) show how the combination of increasing returns to scale at the firm level and pecuniary externalities can give rise to a poverty trap, thereby formalising an old idea due to Rosenstein-Rodan (1943). We develop in this paper an oligopoly model of the Big Push that is very close in spirit to the Murphy-Shleifer-Vishny (MSV) model, but in contrast to the MSV model it is easily extended to the case of an economy that is open to international trade. Having a workable open-economy framework allows us to address the question whether globalization makes it easier or harder for a country to escape from a poverty trap. Our model gives a definite answer to this question: Globalisation makes it harder to escape from a poverty trap since the adoption of the modern technology at the firm level is impeded by tougher competition in the open economy.

Keywords: Poverty Traps, Multiple Equilibria, International Trade, Technology Upgrading, General Oligopolistic Equilibrium

JEL Classification: F120, O140, F430

Suggested Citation

Kreickemeier, Udo and Wrona, Jens, Industrialisation and the Big Push in a Global Economy (May 23, 2017). CESifo Working Paper Series No. 6475, Available at SSRN: https://ssrn.com/abstract=2985319 or http://dx.doi.org/10.2139/ssrn.2985319

Udo Kreickemeier (Contact Author)

University of Tuebingen ( email )

DE-72074 Tubingen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

University of Goettingen (Göttingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Jens Wrona

University of Tuebingen - Faculty of Economics and Social Sciences ( email )

Mohlstrasse 36
Tuebingen, Baden-Wuerttemberg 72074
Germany

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