Derive a condition for relative income differences

Reference no: EM131160098

Consider a variation of the product cycle model in Section 19.5. Suppose there is no trade, so that the number of goods consumed in each country differs.

(a) Show that wages and incomes in the North and the South at time t are

(b) Derive a condition for relative income differences to be smaller in this case than in the model with international trade. Provide a precise intuition for why international trade may increase relative income differences.

(c) If trade increases the income differences between the North and the South, does it mean that it reduces welfare in the South?

Reference no: EM131160098

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