The product cycle and the world distribution of income a reformulation

Abstract

This paper uses a North-South trade model with skilled and unskilled labor to study the effect of labor supply on the world distribution of income. The world rate of innovation is endogenized. An increase in the supply of unskilled labor in a country lowers its steady-state relative wage (which is consistent with Krugman's result), while an increase in supply of skilled labor in a country raises its steady-state relative wage (which is consistent with Grossman-Helpman's result) when the elasticity of substitution between goods is sufficiently large. Both Krugman's and Grossman-Helpman's models are special cases of this unified model.