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Relative Convergence in a Dual Economy with Tradeable and Non-Tradeable Goods

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Author Info
Groot, H.L.F. de
Schaik, A.B.T.M. van (Tilburg University, Center for Economic Research)

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Abstract

This paper develops a two-country two-sector endogenous growth model with a dual labour market based on efficiency wages. Growth is driven by Research done in the (high-tech) tradeable sector. The follower country tends to grow faster the greater the productivity gap from the leader country, but differences in unemployment benefit systems can lead to relative convergence, i.e. a steady state with the backward country lagging behind the leader country. The reason for this is that high social welfare benefits generate high unemployment and reduce the amount of labour employed for R&D purposes. Furthermore, it is shown that a shift in preferences towards non-tradeables can explain a global slowdown in economic growth.

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Publisher Info
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 43.

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Date of creation: 1995
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Handle: RePEc:dgr:kubcen:199543

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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