IDEAS home Printed from https://ideas.repec.org/p/ewp/wpaper/361web.html
   My bibliography  Save this paper

Industrial Policy and the Timing of Trade Liberalization

Author

Listed:
  • Till F. Hollstein

    (Universitat de Barcelona)

  • Kristian Estévez

    (Universitat de Barcelona)

Abstract

In a closed (open) economy with a learning-by-doing externality in the manufacturing sector, Matsuyama (1992) found a positive (negative) link between the level of agricultural productivity and economic growth. We extend that framework by introducing a labor subsidy to induce industrialization. We make three contributions to the existing literature. First, we show that a comparative advantage in manufacturing is not a necessary condition for a small open economy to industrialize. Relative sectoral TFP growth determines whether the fraction of labor in manufacturing increases over time. Second, the timing of trade liberalization determines structural development and the use of a labor subsidy can allow a small open economy to industrialize early. Third, we analyze the labor subsidy when there is trade among two open economies. We find that there exists a unique subsidy which enables both economies to industrialize. Therefore, a country with a comparative advantage in producing the manufactured good could benefit from their trading partner using labor subsidies compared to not trading with them at all.

Suggested Citation

  • Till F. Hollstein & Kristian Estévez, 2017. "Industrial Policy and the Timing of Trade Liberalization," UB School of Economics Working Papers 2017/361, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:361web
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/2445/113164
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sachs, Jeffrey D. & Warner, Andrew M., 1999. "The big push, natural resource booms and growth," Journal of Development Economics, Elsevier, vol. 59(1), pages 43-76, June.
    2. Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-452, May.
    3. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    4. Saure, Philip, 2007. "Revisiting the infant industry argument," Journal of Development Economics, Elsevier, vol. 84(1), pages 104-117, September.
    5. Dekle, Robert & Vandenbroucke, Guillaume, 2012. "A quantitative analysis of China's structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 119-135.
    6. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
    7. repec:hoo:wpaper:e-92-3 is not listed on IDEAS
    8. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1, March.
    9. Redding, Stephen, 1999. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 15-39, January.
    10. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    11. Teignier, Marc, 2018. "The role of trade in structural transformation," Journal of Development Economics, Elsevier, vol. 130(C), pages 45-65.
    12. Michele Boldrin & Jose A. Scheinkman, 1988. "Learning-By-Doing, International Trade and Growth: A Note," UCLA Economics Working Papers 462, UCLA Department of Economics.
    13. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
    14. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March.
    15. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 369-405.
    16. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
    17. Jing Jun Chang & Been-Lon Chen & Mei Hsu, 2006. "Agricultural Productivity and Economic Growth: Role of Tax Revenues and Infrastructures," Southern Economic Journal, John Wiley & Sons, vol. 72(4), pages 891-914, April.
    18. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Unjung Whang, 2017. "Structural Transformation and Comparative Advantage: Implications for Small Open Economies," The World Economy, Wiley Blackwell, vol. 40(4), pages 743-763, April.
    2. Emerson Marinho & Maurício Benegas & Flávio Ataliba, 2005. "Vantagem Comparativa Dinâmica E Crescimento Endógeno Numa Economia Com Dois Setores: Agrícola E Industrial," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33rd Brazilian Economics Meeting] 141, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Réka Juhász, 2014. "Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade," CEP Discussion Papers dp1322, Centre for Economic Performance, LSE.
    4. Andrew Atkeson & Patrick J. Kehoe, 2000. "Paths of development for early- and late-bloomers in a dynamic Heckscher-Ohlin model," Staff Report 256, Federal Reserve Bank of Minneapolis.
    5. Bolhuis, Marijn, 2019. "Catch-Up Growth and Inter-Industry Productivity Spillovers," MPRA Paper 94730, University Library of Munich, Germany.
    6. Juhász, Réka, 2014. "Temporary protection and technology adoption: evidence from the Napoleonic blockade," LSE Research Online Documents on Economics 60697, London School of Economics and Political Science, LSE Library.
    7. Mohammad Ali MORADI, 2009. "Oil Resource Abundance, Economic Growth,and Income Distribution in Iran," EcoMod2009 21500069, EcoMod.
    8. Andrea Brasili & Paolo Epifani & Rodolfo Helg, 1999. "On the dynamics of trade patterns," LIUC Papers in Economics 61, Cattaneo University (LIUC).
    9. Fertő, Imre & Hubbard, Lionel J., 2005. "Az agrárkereskedelem dinamikája - A csatlakozó országok esete [The dynamics of agri-food trade patterns - the accession countries case]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 24-38.
    10. Reda Cherif & Fuad Hasanov, 2014. "Soaring of the Gulf Falcons: Diversification in the GCC Oil Exporters in Seven Propositions," IMF Working Papers 2014/177, International Monetary Fund.
    11. Oleg Itskhoki & Benjamin Moll, 2019. "Optimal Development Policies With Financial Frictions," Econometrica, Econometric Society, vol. 87(1), pages 139-173, January.
    12. Carlos Humberto Ortiz Quevedo, 2003. "Learning-By-Doing, Government Spending And Economic Growth: A Model A La Matsu Yama-Barro," Documentos de Trabajo 3136, Universidad del Valle, CIDSE.
    13. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    14. Silvia Dal Bianco, 2016. "Going clubbing in the eighties: convergence in manufacturing sectors at a glance," Empirical Economics, Springer, vol. 50(2), pages 623-659, March.
    15. Yanagawa, Noriyuki, 1996. "Economic development in a world with many countries," Journal of Development Economics, Elsevier, vol. 49(2), pages 271-288, May.
    16. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
    17. Volpe Martincus, Christian & Estevadeordal, Antoni, 2009. "Trade Policy and Specialization," IDB Publications (Working Papers) 2489, Inter-American Development Bank.
    18. Barbier,Edward B., 2007. "Natural Resources and Economic Development," Cambridge Books, Cambridge University Press, number 9780521706513.
    19. Miguel Lebre de Freitas & Ricardo Paes Mamede, 2011. "Structural transformation of Portuguese exports and the role of foreign-owned firms: A descriptive analysis for the period 1995-2005," Notas Económicas, Faculty of Economics, University of Coimbra, issue 33, pages 20-43, June.
    20. Jørn Rattsø & Hildegunn Ekroll Stokke, 2003. "Learning and Foreign Technology Spillover in Thailand: Empirical Evidence on Productivity Dynamics," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 29, pages 47-66.

    More about this item

    Keywords

    Labor Subsidy; Production Externality; Industrialization; International Trade.;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ewp:wpaper:361web. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: University of Barcelona School of Economics (email available below). General contact details of provider: https://edirc.repec.org/data/feubaes.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.