Industrialisation and the Big Push in a Global Economy

CEGE Discussion Papers Number 388 – February 2020

30 Pages Posted: 11 Mar 2020

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 6, 2020

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.

Keywords: Big Push, multiple equilibria, backward linkages, international trade, globalisation, poverty trap, technology upgrading, monopolistic competition

JEL Classification: F12, O14, F43

Suggested Citation

Kreickemeier, Udo and Wrona, Jens, Industrialisation and the Big Push in a Global Economy (February 6, 2020). CEGE Discussion Papers Number 388 – February 2020, Available at SSRN: https://ssrn.com/abstract=3533894 or http://dx.doi.org/10.2139/ssrn.3533894

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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