Disparity in Wages but not in Returns to Capital between Rich and Poor Countries
One of the striking features of the international economy is that while the level of average wage rates in rich countries is many times that in poor countries, their average rates of return to capital seem to be roughly similar or the differences in them relatively very small. This cannot be fully explained away by the fact that capital is internationally much more mobile than labor. There is remarkably little movement of return-sensitive private capital between the richest and the poorest countries. In this paper we assume instead that factors of production are internationally immobile, and try to explain the observed asymmetry in the pattern of factor prices in terms of particular types of differences in production functions between rich and poor countries, in terms of differential learning effects and differential degrees of specialization in the sector producing intermediate inputs and services.
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- Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
- M. A. M. Smith, 1976. "International Trade Theory in Vintage Models," Review of Economic Studies, Oxford University Press, vol. 43(1), pages 99-113.
- Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
- 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.