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Must improved labor standards hurt accumulation in the targeted sector? Stylized analysis of a developing economy

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  • Razmi, Arslan

Abstract

This paper analyzes a stylized small open economy that consists of two tradable output-producing sectors: a manufacturing sector and a (mainly tourism-related) services sector. Assuming sectoral differences based on stylized facts, we explore the impact of higher labor standards in the manufacturing sector on the long-term prospects of the economy using comparative dynamic exercises to analyze changes in relative prices, foreign capital flows, and the sectoral distribution of investment and output. We find, in particular, that imposing higher standards across the manufacturing sector could, under certain conditions, shift the structure of the domestic economy in favor of that sector. This result is driven by changes in relative profitability in the presence of learning-by-exporting.

Suggested Citation

  • Razmi, Arslan, 2011. "Must improved labor standards hurt accumulation in the targeted sector? Stylized analysis of a developing economy," Structural Change and Economic Dynamics, Elsevier, vol. 22(4), pages 299-312.
    • Handle: RePEc:eee:streco:v:22:y:2011:i:4:p:299-312
    DOI: 10.1016/j.strueco.2011.06.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor standards; Structural change; Learning-by-exporting; Tradable sector; Industrialization;
    All these keywords.

    JEL classification:

    • J80 - Labor and Demographic Economics - - Labor Standards - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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