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Growth and Inequality in Closed and Open Economies: The Role of the Product Cycle

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  • Ranjan Priya

    ()
    (University of California, Irvine)

Abstract

The product cycle literature suggests that new goods have a higher skill intensity in the early phase of production, which declines once the production process becomes standardized. Using this insight it is shown how an increase in the rate of neutral technological progress, which frees up resources tied in the production of existing goods, leads to increased production of skill intensive new goods and consequently an increase in wage inequality. When technological progress is exogenous, a decrease in skill endowment or trade liberalization with a skill scarce country increases wage inequality but leaves the composition of production between new and standardized goods unaltered. When the rate of technological progress depends on research effort, trade between a skill-abundant Northern economy and a skill-scarce Southern economy can raise wage inequality in both countries and increase productivity growth in the latter. North-North trade increases both wage inequality and productivity growth.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (September)
Pages: 1-37

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:36

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Web page: http://www.degruyter.com

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Cited by:
  1. Garduno-Rivera, Rafael & Baylis, Katherine R., 2012. "Effect of Tariff Liberalization on Mexico’s Income Distribution in the presence of Migration," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124740, Agricultural and Applied Economics Association.
  2. Garduno-Rivera, Rafael, 2010. "Effect of NAFTA on Mexico's Income Distribution in the Presence of Migration," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61895, Agricultural and Applied Economics Association.

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