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Do Low-Income Countries have a High-Wage Option?

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  • Dani Rodrik

Abstract

Poor countries must specialize in standardized. labor-intensive commodities. Middle income countries may have a richer menu of options available to them if their labor force is reasonably well-educated and skilled. This paper is motivated by the possibility that there may exist multiple specialization patterns for countries of the second type. What creates the multiplicity of equilibria is a coordination problem inherent in high-tech activities. It is assumed that high-tech production requires a range of differentiated intermediate inputs that are nontradable. For the high-tech sector to become viable. a sufficiently large number of intermediaries has to be produced domestically. But if none is currently being produced. there is little incentive for any single firm to do so on its own. The economy may get stuck in a low-wage. low-tech equilibrium--even though the high-tech sector is viable. As long as the high-tech sector is more capital-intensive than the low-tech sector, a high-wage policy would get the high-tech sector going and be welfare-enhancing.

Suggested Citation

  • Dani Rodrik, 1993. "Do Low-Income Countries have a High-Wage Option?," NBER Working Papers 4451, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4451
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    1. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 617-650.
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    3. Faini, Riccardo, 1984. "Increasing Returns, Non-Traded Inputs and Regional Development," Economic Journal, Royal Economic Society, vol. 94(374), pages 308-323, June.
    4. Ciccone, Antonio & Matsuyama, Kiminori, 1996. "Start-up costs and pecuniary externalities as barriers to economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 33-59, April.
    5. Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
    6. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    7. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    8. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    9. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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    Cited by:

    1. Kimakova, Alena & Rajabiun, Reza, 1999. "An Applied General Equilibrium Analysis of EU Integration for Hungary and Slovakia," Transition Economics Series 9, Institute for Advanced Studies.
    2. Carla Berke & Harald Trabold, 1995. ""Low-cost" oder "High-tech"?: Strategische Außenwirtschaftsoptionen für die mittel- und osteuropäischen Länder," Discussion Papers of DIW Berlin 124, DIW Berlin, German Institute for Economic Research.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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