Technology Intensity and the World Distribution of Income

Abstract

This paper presents a simple model of monopolistic competition in a North-South world. The North introduces new goods that the South takes over when the goods become old. The new goods are more technology-intensive than the old goods because innovation requires more efforts than imitation. In the literature, the world distribution of income favors the country that produces a greater range of variety. However, in this model, the South’s catching up in terms of the range of variety is not a threat to the North’s status quo. It is the difference in technology intensity that determines their relative wage.