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Modelling International Economic Integration: Patterns of Catching-up and Foreign Direct Investment

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  • Michael A. Landesmann
  • Robert Stehrer

Abstract

In this paper we develop a model of international specialisation and catching-up which combines Ricardian and Schumpeterian features. Catching-up patterns are endogenised by FDI flows which react to industry specific unit rents and thus enforce convergence dynamics. This generalises the Gerschenkronian idea of the "advantage of backwardness" to be applied at a disaggregated level and explains the empirically observed pattern that some countries converge faster in the high tech sectors where the initial gap is larger. Depending on the productivity, wage and profits dynamic there may be "comparative advantage switchovers" in which a catching-up economy turns its competitive advantage towards medium-to hightech areas. We investigate in which way labour market dynamics, productivity catching-up and investment patterns all combine to determine the evolution of the international division of labour. Further we point also to the impact on labour demand and wage structures (between skilled and unskilled workers) both in the lead and the catching-up economies.

Suggested Citation

  • Michael A. Landesmann & Robert Stehrer, 2006. "Modelling International Economic Integration: Patterns of Catching-up and Foreign Direct Investment," Economia politica, Società editrice il Mulino, issue 3, pages 335-362.
  • Handle: RePEc:mul:jb33yl:doi:10.1428/23531:y:2006:i:3:p:335-362
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    Cited by:

    1. Ainura Uzagalieva & Evžen Kocenda & Antonio Menezes, 2012. "Technological Innovation in New EU Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 48-65, September.
    2. Michael Landesmann & Robert Stehrer, 2009. "South-North Integration, Outsourcing and Skills," wiiw Research Reports 353, The Vienna Institute for International Economic Studies, wiiw.

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