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The Role Of Expectations In A Specialization-Driven Growth Model With Endogenous Technology Choice

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Author Info

  • SHIRO KUWAHARA

    ()
    (Institute of Economic Research, Kyoto University, Yoshida-honmachi, Sakyo-ku, Kyoto 606-8501, Japan)

  • AKIHISA SHIBATA

    ()
    (Institute of Economic Research, Kyoto University, Yoshida-honmachi, Sakyo-ku, Kyoto 606-8501, Japan)

Abstract

Extending the Kim (1989) model of endogenous labor specialization to an overlapping generations model with an endogenous technology choice, we show in this paper that, when the market size and the fixed costs associated with the technologies with labor specialization are small, the growth pattern of this economy depends on worker expectations. In other words, if workers expect low returns of specific human capital, they will not invest in such capital, and the economy will be eventually locked in an underdevelopment trap. On the other hand, if they expect high returns of specific human capital, they invest in such capital, and, as a result, the economy can exhibit long-run growth.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Division of Labor & Transaction Costs.

Volume (Year): 02 (2006)
Issue (Month): 01 ()
Pages: 55-69

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Handle: RePEc:wsi:dltcxx:v:02:y:2006:i:01:p:55-69

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Keywords: Labor specialization; endogenous choice of technology; endogenous growth; development traps;

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  1. Iwaisako, Tatsuro, 2002. "Technology choice and patterns of growth in an overlapping generations model," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 211-231, June.
  2. Davis, Lewis S., 2006. "Growing apart: The division of labor and the breakdown of informal institutions," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 75-91, March.
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  6. Mohtadi, Hamid & Kim, Sunwoong, 1992. "Labor Specialization and Endogenous Growth," Bulletins 7452, University of Minnesota, Economic Development Center.
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  8. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May.
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  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  15. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  16. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-70, March.
  17. Weitzman, Martin L, 1994. "Monopolistic Competition with Endogenous Specialization," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 45-56, January.
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