Trade policy and leapfrogging.

Abstract

The recent extensive study of vertical product differentiation models has allowed for the analysis of international trade issues in the presence of country asymmetries in terms of product qualities, technology, cost, market size and income. In the presence of such asymmetries, national industries will either be market leaders or lagging behind in the international market place in terms of their product qualities. The resulting asymmetry in profits creates powerful incentives for lagging industries as well as their national Governments to reverse this situation to their advantage, i.e., to induce "leapfrogging" in terms of product qualities. This paper presents an overview of existing research on leapfrogging as well as several new results and questions.Product qualities; International trade; Trade policy;