Winners and losers in a North-South model of growth, innovation and product cycles

The paper examines the welfare gains from North-South trade and their distr ibution. We construct an endogenous growth North-South model with four Sout hern stages of development as possible equilibria: specialisation in a trad itional good; the South, in addition, copies Northern high-tech manufacture d goods; the South begins to innovate in its own right; and finally, a stag e in which the South only innovates, as in the North. We use this model to show that dynamic gains from trade and from Southern development through th e stages can create new winners, unskilled workers in the North, and skille d workers in the South. (C) 2001 Elsevier Science B.V. All rights reserved.