Abstract
In this paper a dynamic general equilibrium model of North-South trade with scale-invariant technological change is developed. Northern firms do costly innovation to expand the number of available consumer good varieties while southern firms devote resources to imitate varieties produced in the North. Endogenous rates of innovation and imitation are determined as well as the North-South wage differential. The paper studies the steady-state consequences of three different public policies related to the international integration of product markets; the decision of a less-developed country to join the world trading system, stronger protection of Intellectual Property Rights and lower trade costs. The associated steady-state welfare implications are also examined.