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The Curse And Blessing Of Fixed Specific Factors In Small-Open Economies

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Author Info
Fidel Pérez Sebastián () (Universidad de Alicante)
María Dolores Guilló () (Universidad de Alicante)

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Abstract

This paper investigates how a country's specific-factors endowment affects its long-run economic performance. We build an open-economy version of the two-sector neoclassical growth model in which we introduce fixed industry-specific inputs in both activities. The model predicts the type of international factor-price equalization found by Trefler (1993). We show that, under factor price equalization, differences in input shares between sectors that only use mobile factors and industries that employ fixed specific inputs can explain why nations that seem to have similar factor endowments can show very different income levels. In particular, larger amounts of factors specific to the industry with a lower (larger) labor share lead the economy to enjoy larger (smaller) long-run income levels. The model can also account for overtaking episodes between countries along their development paths.

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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-36.

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Length: 25 pages
Date of creation: Nov 2003
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-36

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Related research
Keywords: specific-factors long-run incomes small open economies

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Find related papers by JEL classification:
O41 - Economic Development, 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

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  2. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June. [Downloadable!] (restricted)
  3. Douglas Gollin & Steven Parente & Richard Rogerson, 2003. "Structural Transformation and Cross-Country Income Differences," Levine's Bibliography 506439000000000259, UCLA Department of Economics. [Downloadable!]
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  5. Brock, Philip L & Turnovsky, Stephen J, 1993. "The Growth and Welfare Consequences of Differential Tariffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 765-94, November. [Downloadable!] (restricted)
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  8. Jonathan Eaton, 1987. "A Dynamic Specific-Factors Model of International Trade," NBER Working Papers 1479, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May. [Downloadable!] (restricted)
  10. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier. [Downloadable!] (restricted)
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  1. Dmytro Kylymnyuk & Lilia Maliar & Serguei Maliar, 2007. "Rich, Poor and Growth-Miracle Nations: Multiple Equilibria Revisited," Topics in Macroeconomics, Berkeley Electronic Press, vol. 7(1), pages 1482-1482. [Downloadable!] (restricted)
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