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The high road and the low road to international competitiveness: Extending the neo-Schumpeterian trade model beyond technology

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  • William Milberg
  • Ellen Houston
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    Abstract

    Extending the neo-Schumpeterian trade model, we estimate a 'social-gap' model for a group of 17 OECD countries over the period 1975-1995. We find that government spending on social protection, employment protection regulations, union density, strike activity, and income security in the labor market (all measured in 'gap' form) are statistically significantly related to changes in international competitiveness. Specifically, we find some support for a Calmfors-Driffil, nonlinear, relation between cooperative labor relations and social spending patterns on the one hand, and international trade (and inward foreign investment) competitiveness on the other, implying that countries with relatively stronger institutional arrangements have better international economic performance than countries in the middle of the scale of conflict and cooperation. Our results indicate that models focusing solely on innovative effort are misspecified, and may suffer from an omitted variable bias caused by the absence of consideration of other institutional factors influencing international trade and investment.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

    Volume (Year): 19 (2005)
    Issue (Month): 2 ()
    Pages: 137-162

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    Handle: RePEc:taf:irapec:v:19:y:2005:i:2:p:137-162

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    Related research

    Keywords: International trade theory; technology gaps; social expenditure; labor relations; JEL Classification: F10; H50; J50;

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    Cited by:
    1. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, Emerald Group Publishing, vol. 32(3), pages 273-299, July.
    2. Andrés Maroto Sanchez & Luis Rubalcaba Bermejo, 2006. "Competitiveness and the Kaldor Paradox: The case of Spanish Service Sector," Working Papers, Instituto Universitario de Análisis Económico y Social 06/06, Instituto Universitario de Análisis Económico y Social.

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