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Cumulative Effects of Labor Market Distortions in a Developing Country

This paper considers a small open economy with an input-output industrial structure that creates vertical linkages and multiple equilibria. An imperfect labor market is introduced by assuming unionized labor. It is shown that a deregulation of the labor market may trigger a large discontinuous expansion of industrial output, as reduced wage-costs start a circular, cumulative process in which expansions of the up-and downstream industries promote each other. Centralization of collective bargaining may, however, also be conductive to industrialization.

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File URL: http://swopec.hhs.se/iuiwop/papers/iuiwop0520.pdf
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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 520.

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Length: 23 pages
Date of creation: 19 Jan 1999
Date of revision: 05 Oct 2000
Publication status: Forthcoming in Journal of Developing Economics.
Handle: RePEc:hhs:iuiwop:0520
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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  1. Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-79, December.
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  12. Venables, Anthony J., 1996. "Trade policy, cumulative causation, and industrial development," Journal of Development Economics, Elsevier, vol. 49(1), pages 179-197, April.
  13. Robert J. Flanagan, 1999. "Macroeconomic Performance and Collective Bargaining: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1150-1175, September.
  14. Horton, Susan & Kanbur, Ravi & Mazumdar, Dipak, 1991. "Labor markets in an era of adjustment : an overview," Policy Research Working Paper Series 694, The World Bank.
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  16. Kiminori Matsuyama, 1993. "Modeling Complementarity in Monopolistic Competition," Discussion Papers 1028, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Matsuyama, K., 1993. "Modelling Complementary in Monopolistic Competition," Papers 534, Stockholm - International Economic Studies.
  18. Moene, Karl Ove & Wallerstein, Michael, 1997. "Pay Inequality," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 403-30, July.
  19. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
  20. Pemberton, James, 1988. "A 'Managerial' Model of the Trade Union," Economic Journal, Royal Economic Society, vol. 98(392), pages 755-71, September.
  21. Moene, K.O. & Wallerstein, M. & Hoel, M., 1992. "Bargaining Structure and Economic Performance," Memorandum 10/1992, Oslo University, Department of Economics.
  22. Pack, Howard & Westphal, Larry E., 1986. "Industrial strategy and technological change : Theory versus reality," Journal of Development Economics, Elsevier, vol. 22(1), pages 87-128, June.
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