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Specialization on a technologically stagnant sector need not be bad for growth

  • Felbermayr, Gabriel

This paper presents a two-sector, North-South model of endogenous growth, where the investment goods sector features learning by doing. There are no technological spillovers across countries that are integrated only via goods markets. In equilibrium, South specializes on the consumption sector. Despite strict concavity of the production function for consumption goods, the endogenous decline in the relative price of investment goods maintains the incentives for capital accumulation. Hence, specialization on the stagnant consumption sector does not entail a growth penalty. The model is consistent with a number of empirical observations: (i) the relative price of investment goods has been declining in many countries; (ii) poor countries are net importers of investment equipment; (iii) per capita income convergence has stopped in the sample of open economies.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20645.

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Date of creation: 2007
Date of revision:
Publication status: Published in Oxford Economic Papers 4 59(2007): pp. 682-701
Handle: RePEc:lmu:muenar:20645
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  1. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters, in: Globalization in Historical Perspective, pages 121-188 National Bureau of Economic Research, Inc.
  2. Raouf BOUCEKKINE & Fernando DEL RIO & Omar LICANDRO, 2002. "Embodied Technological Change, Learning-by-Doing and the Productivity Slowdown," Economics Working Papers ECO2002/12, European University Institute.
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  9. Nancy L. Stokey, 1990. "Human Capital, Product Quality, And Growth," NBER Working Papers 3413, National Bureau of Economic Research, Inc.
  10. Zhiqi Chen, 1992. "Long-Run Equilibria in a Dynamic Heckscher-Ohlin Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 923-43, November.
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  12. Grilli, Enzo R & Yang, Maw Cheng, 1988. "Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows," World Bank Economic Review, World Bank Group, vol. 2(1), pages 1-47, January.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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