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

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  • Fidel Pérez Sebastián

    ()
    (Universidad de Alicante)

  • María Dolores Guilló Fuentes

    ()
    (Universidad de Alicante)

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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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2003-36.pdf
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Bibliographic 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
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-36

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Keywords: specific-factors; long-run incomes; small open economies;

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References

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  1. Jonathan Eaton, 1987. "A Dynamic Specific-Factors Model of International Trade," NBER Working Papers 1479, National Bureau of Economic Research, Inc.
  2. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
  3. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  4. Jonathan Eaton & Samuel Kortum, 2001. "Trade in Capital Goods," NBER Working Papers 8070, National Bureau of Economic Research, Inc.
  5. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  6. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  7. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  8. Kohli, Ulrich, 1993. "U.S. technology and the specific-factors model," Journal of International Economics, Elsevier, vol. 34(1-2), pages 115-136, February.
  9. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
  10. Gylfason, Thorvaldur, 2000. "Natural Resources, Education, and Economic Development," CEPR Discussion Papers 2594, C.E.P.R. Discussion Papers.
  11. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
  12. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
  13. Fürnkranz-Prskawetz, Alexia & Kögel, Tomas, 2000. "Agricultural Productivity Growth and Escape from the Malthusian Trap," CEPR Discussion Papers 2485, C.E.P.R. Discussion Papers.
  14. Gary D. Hansen & Edward C. Prescott, 1998. "Malthus to Solow," NBER Working Papers 6858, National Bureau of Economic Research, Inc.
  15. 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.
  16. repec:fth:stanho:e-92-3 is not listed on IDEAS
  17. Rassekh, Farhad & Thompson, Henry, 1997. "Adjustment in General Equilibrium: Some Industrial Evidence," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 20-31, February.
  18. Dinopoulos, Elias & Segerstrom, Paul, 1999. "The dynamic effects of contingent tariffs," Journal of International Economics, Elsevier, vol. 47(1), pages 191-222, February.
  19. Douglas Gollin & Steven Parente & Richard Rogerson, 2003. "Structural Transformation and Cross-Country Income Differences," Levine's Working Paper Archive 506439000000000259, David K. Levine.
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Citations

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Cited by:
  1. repec:ltr:wpaper:2010.02 is not listed on IDEAS
  2. Iain Fraser & Robert Waschik, 2010. "The Double Dividend Hypothesis in a CGE Model: Specific Factors and Variable Labour Supply," Studies in Economics 1001, Department of Economics, University of Kent.
  3. Lilia Maliar & Dmytro Kylymnyuk & Serguei Maliar, 2004. "Rich, Poor And Growth-Miracle Nations: Multiple Equilibria Revisited," Working Papers. Serie AD 2004-39, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  4. Lilia Maliar & Dmytro Kylymnyuk & Serguei Maliar, 2005. "A Model Of Unbalanced Sectorial Growth With Application To Transition Economies," Working Papers. Serie AD 2005-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Guilló, María Dolores & Pérez-Sebastián, Fidel, 2012. "Neoclassical Growth and the Natural Resource Curse Puzzle," QM&ET Working Papers 12-14, Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica.

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