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The high road and the low road to international competitiveness: Extending the neo-Schumpeterian trade model beyond technology

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  • William Milberg
  • Ellen Houston

Abstract

Extending the neo-Schumpeterian trade model, we estimate a 'social-gap' model for a group of 17 OECD countries over the period 1975-1995. We find that government spending on social protection, employment protection regulations, union density, strike activity, and income security in the labor market (all measured in 'gap' form) are statistically significantly related to changes in international competitiveness. Specifically, we find some support for a Calmfors-Driffil, nonlinear, relation between cooperative labor relations and social spending patterns on the one hand, and international trade (and inward foreign investment) competitiveness on the other, implying that countries with relatively stronger institutional arrangements have better international economic performance than countries in the middle of the scale of conflict and cooperation. Our results indicate that models focusing solely on innovative effort are misspecified, and may suffer from an omitted variable bias caused by the absence of consideration of other institutional factors influencing international trade and investment.

Suggested Citation

  • William Milberg & Ellen Houston, 2005. "The high road and the low road to international competitiveness: Extending the neo-Schumpeterian trade model beyond technology," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(2), pages 137-162.
  • Handle: RePEc:taf:irapec:v:19:y:2005:i:2:p:137-162 DOI: 10.1080/02692170500031646
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    References listed on IDEAS

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    1. Sherwin Rosen, 1990. "Contracts and the Market for Executives," NBER Working Papers 3542, National Bureau of Economic Research, Inc.
    2. Yermack, David, 1997. " Good Timing: CEO Stock Option Awards and Company News Announcements," Journal of Finance, American Finance Association, vol. 52(2), pages 449-476, June.
    3. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
    4. Cosh, Andrew, 1975. "The Remuneration of Chief Executives in the United Kingdom," Economic Journal, Royal Economic Society, vol. 85(337), pages 75-94, March.
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    Cited by:

    1. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, vol. 32(3), pages 273-299, June.
    2. Inés Granda & Antonio Fonfría, 2009. "Technology and economic inequality effects on international trade," Working Papers del Instituto Complutense de Estudios Internacionales 0902, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    3. Andrés Maroto Sanchez & Luis Rubalcaba Bermejo, 2006. "Competitiveness and the Kaldor Paradox: The case of Spanish Service Sector," Working Papers 06/06, Instituto Universitario de Análisis Económico y Social.
    4. Paolo Ramazzotti, 2016. "Themes in an institutionalist theory of economic policy," Working Papers 81-2016, Macerata University, Department of Finance and Economic Sciences, revised May 2016.
    5. repec:ucm:wpaper:02-09 is not listed on IDEAS

    More about this item

    Keywords

    International trade theory; technology gaps; social expenditure; labor relations; JEL Classification: F10; H50; J50;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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