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The Role of Expectations in a Specialization-driven Growth Model with Endogenous Technology Choice

  • Shiro Kuwahara


    (Institute of Economic Research, Kyoto University)

  • Akihisa Shibata


    (Institute of Economic Research, Kyoto University)

Extending the Kim (1989) model of endogenous labor specialization to an overlapping generations model with an endogenous technology choice, we show in this paper that, when the market size and the fixed costs associated with the technologies with labor specialization are small, the growth pattern of this economy depends on worker expectations. In other words, if workers expect low returns of specific human capital, they will not invest in such capital, and the economy will be eventually locked in an underdevelopment trap. On the other hand, if they expect high returns of specific human capital, they invest in such capital, and, as a result, the economy can exhibit long-run growth.

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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 625.

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Length: 20pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:kyo:wpaper:625
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  1. Cheng, Wenli & Yang, Xiaokai, 2004. "Inframarginal analysis of division of labor: A survey," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 137-174, October.
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  3. Becker, Gary S & Murphy, Kevin M, 1992. "The Division of Labor, Coordination Costs, and Knowledge," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1137-60, November.
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  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  7. Mohtadi, Hamid & Kim, Sunwoong, 1992. "Labor Specialization and Endogenous Growth," Bulletins 7452, University of Minnesota, Economic Development Center.
  8. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implications for Growth," NBER Working Papers 3530, National Bureau of Economic Research, Inc.
  9. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
  10. Kim, Sunwoong, 1989. "Labor Specialization and the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 692-705, June.
  11. Yang, Xiaokai & Borland, Jeff, 1991. "A Microeconomic Mechanism for Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 460-82, June.
  12. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-70, March.
  13. Iwaisako, Tatsuro, 2002. "Technology choice and patterns of growth in an overlapping generations model," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 211-231, June.
  14. Davis, Lewis S., 2003. "The division of labor and the growth of government," Journal of Economic Dynamics and Control, Elsevier, vol. 27(7), pages 1217-1235, May.
  15. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
  16. Rodrik, Dani, 1996. "Coordination failures and government policy: A model with applications to East Asia and Eastern Europe," Journal of International Economics, Elsevier, vol. 40(1-2), pages 1-22, February.
  17. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
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