The Choice of Technology and Rural-Urban Migration in Economic Development

This paper studies a general equilibrium model of rural-urban migration in which manufacturing firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Urban residents incur commuting costs to work in the Central Business District. Surprisingly a change in the size of the population or an increase in the exogenously given wage rate will not affect a manufacturing firm’s choice of technology. This helps to explain why firms in developing countries may not adopt labor intensive technologies even under abundant labor supply. An increase in the number of manufacturing firms increases both the employment rate and the level of employment in the manufacturing sector. However, manufacturing firms choose less advanced technologies. Capital accumulation leads manufacturing firms to choose more advanced technologies, but may not increase employment in the manufacturing sector.     

Unemployment and Economic Integration for Developing Countries

While financial or trade integration between countries may increase the size of the market and aid the adoption of more advanced technologies, will it also increase the level of urban unemployment for a developing country? In this model, there is unemployment in the urban sector. Manufacturing firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Financial firms provide capital to manufacturing firms and they also engage in oligopolistic competition. We show that an increase in the wage rate in the manufacturing sector changes neither the level of technology nor the level of employment in the manufacturing sector. While financial or trade integration between developing countries leads manufacturing firms to adopt more advanced technologies, the level and rate of employment in the manufacturing sector will not deteriorate.     

A Dynamic Model of the Choice of Technology in Economic Development

In this overlapping-generations model, there is unemployment in the manufacturing sector. Manufacturing firms engage in oligopolistic competition and choose technologies to maximize profits. With capital as a fixed cost of production, increasing returns in the manufacturing sector exist. In the unique steady state, first, when individuals become more patient, the savings rate increases while the level of an individual’s income decreases. Second, an increase in population or percentage of income spent on manufactured goods does not change steady-state technology while the level of an individual’s income decreases. Third, an increase in the wage rate leads manufacturing firms to choose more advanced technologies and the steady-state capital stock increases. Finally, an increase in the level of subsidies to technology adoption does not change steady-state technology.     

The choice of technology in economic development

The impact of capital accumulation on job creation is an important and interesting issue in economic development. This model provides a general-equilibrium framework for studying technology choice with unemployment in a developing economy based on micro-foundations. Unemployment in the urban sector results from the existence of efficiency wages. Manufacturing firms engage in oligopolistic competition and choose technologies to maximise profits. A more advanced technology uses more capital and less labour. In the steady state, an increase in the amount of capital induces firms to choose more advanced technologies and the wage rate increases. While a higher capital stock always induces firms to choose more advanced technologies, urban unemployment rate may decrease and agricultural sector employment may increase.     

International Borrowing, Specialization, and Unemployment in a Small Open Economy

The authors show that an increase in international borrowing increases specialization and unemployment in a small open economy that is subject to terms‐of‐trade risks. The economy has a production advantage in the export sector. However, the size of the export sector is limited by the available funds. To insure workers against income fluctuations arising from terms‐of‐trade risks, firms in the export sector offer workers a stable wage rate with the possibility of unemployment. An increase in international borrowing increases specialization in the export sector, which leads to higher unemployment when the terms‐of‐trade shock is bad. A state‐contingent price subsidy can reduce unemployment without inefficiently reducing specialization. The results are robust to the introduction of risk‐averse firms.     

Wage bargaining,trade and growth

We construct a North-South product-cycle model of trade with fully-endogenous growth and union wage bargaining. Economic growth is driven by Northern entrepreneurs who conduct R&D to innovate higher quality products. Northern production technologies can leak to the South upon successful imitation. The North has two sectors: a tradable industrial goods sector (manufacturing) where wages are determined via a bargaining process and a non-tradable sector (services) where wages are flexible. The South has only a tradable industrial goods sector where wages are flexible.We find that unilateral Northern trade liberalization, in the form of lower Northern tariffs on industrial goods, increases the rate of innovation but decreases both the bargained wage in the industrial sector and the flexible wage in the service sector. The wage effects are relative to the Southern wage rate. We also consider a variant of the model with Northern unemployment, driven by a binding minimum wage in the non-tradable service sector. In this case, Northern tariff cuts decrease the innovation rate and the bargained wage rate. In addition, the Northern unemployment rate increases. The model thus highlights the role of labor market institutions in determining the growth and labor market effects of tariff reductions. We also study the effects of unilateral Southern trade liberalization.     

Resource abundance,market size,and the choice of technology

How resource abundance and market size affect the choice of increasing returns technologies is studied in an overlapping‐generations general equilibrium model in which manufacturing firms engage in oligopolistic competition. The model is surprisingly tractable. First, for the steady state, the wage rate, the level of technology, and capital stock are not affected by the amount of natural resources. An increase in the share of agricultural revenue going to natural resources leads to a lower wage rate and firms choose less advanced technologies. Second, an increase in market size increases the equilibrium wage rate, level of technology, and capital stock. Finally, other things equal, a country with a lower endowment of natural resources or a higher market size has a comparative advantage in producing the manufactured good.     

Technology Adoption,Export Status,and Skill Upgrading: Theory and Evidence

This paper develops a model of trade that features heterogeneous firms, technology choice and different types of skilled labor in a general equilibrium framework to explain within‐industry increase in the relative demand for skilled workers. Its main contribution is to investigate the impact of firms' export and technology choice decisions on skill upgrading. Only firms in the upper range of the productivity distribution produce for the foreign market using high‐technology. Since this technology is skilled‐biased, exporters that resort to modern technologies are more skill intensive. Empirical evidence is also provided to support the model's main predictions using plant‐level panel data from Chile's manufacturing sector (1990–1999).     

International Trade and Growth Miracles: the Implications of Nonhomothetic Preferences

If the rate of saving increases with income then a low per capita level of the capital stock may be self‐sustaining. In these circumstances international trade may allow an economy to quickly increase its per capita capital stock in a self‐reinforcing “growth miracle” process. A labor‐abundant economy trading with a capital‐abundant economy will see its wage rate rise relative to autarky. This rise in the wage rate also increases the savings rate and so raises the following period’s per capita capital stock. In this way a low‐income economy may exhibit large and permanent increases in its level of GDP per capita after opening its markets to international trade.     

Trade liberalization,firm entry,and income inequality

This paper examines the short‐ and long‐run effects of trade liberalization via tariff reductions on income inequality in an economy, which is characterized by an imperfectly competitive urban manufacturing sector and a perfectly competitive rural agricultural sector. Tariff reductions reduce domestic output in the importable urban manufacturing sector, leading to shifts of capital from the urban sector to the rural agricultural sector. This can narrow the wage gap between skilled and unskilled labor in the short run. However, the lowered capital cost attracts new firms, and subsequently excessive entry of firms, to the urban manufacturing sector. This firm entry effect can mitigate the favorable effect of tariff reductions on wage inequality in the long run. Empirical study confirms the findings.     

Foreign Trade of Manufactures and Men and Women’s Employment and Earnings in Germany and Japan

Using factor content analysis, this paper provides estimates of the effects of manufacturing trade expansion on men and women's employment in Germany and Japan, with breakdowns by world, OECD, and non-OECD trade. Evidence is found that foreign trade expansion had a more negative effect on women's than men's manufacturing employment in Japan and a roughly equal effect in Germany, with the difference between the countries driven by non-OECD trade. In spite of this, demand shifted away from women's manufacturing employment in Germany after the early-1970s, for both the manufacturing sector as a whole and for manufacturing industries with high female shares of employment, while no such labor demand shifts occurred in Japan. In the face of these differences in labor demand and of very similar increases in female labor supply, male-female hourly wage differences narrowed in Germany and widened in Japan, for both manufacturing and non-agricultural employees. It is concluded that shifts in neither labor supply nor labor demand fit with observed trends of male-female wage differences in Germany and Japan.     

The Manufacturing Wage Inequality in Latin America and East Asia: Openness, Technology Transfer, and Labor Supply

This paper examines wage inequality in the manufacturing sector for a panel of Latin American and East Asian economies during the last three decades. A labor supply and demand model is presented where three main determinants of wage inequality are investigated: trade openness, technology transfer, and labor supply. Findings indicate that wage inequality in the two regions has responded differently to the various determinants enumerated above. Some lessons from the comparative experience of the two regions are drawn.     

International migration and real wages: is there any neo-classical ambiguity?

"Recent research has shown that while labor emigration increases the nominal wage rate, the impact on the real wage rate remains quite ambiguous. The present paper reexamines the issue under the standard two-factor, two-commodity international trade model normally employed for this purpose. The principal finding of this paper is that once the problem is correctly formulated and analyzed, introducing utility-maximizing consumers, no such ambiguity exists. Indeed, labor emigration always leads to an increase in the welfare (real wage) of labor in the source country."     

Monopolistic Competition and North–South Trade

This paper examines the consequences of opening to international trade for a developing economy with open urban unemployment and rural–urban migration, where the urban sector is monopolistically competitive. It is shown that there exists a threshold level of urbanization prior to which increases in product variety will be reflected in increased urban unemployment, that opening to intra‐industry trade with a high‐wage economy (i.e. North–South trade) will reduce the rate of urban unemployment by a greater amount than intra‐industry trade with a similar economy, and that trade intervention in the South may lower welfare by reducing varieties produced in the North.     

Technology and outsourcing: An explanation to the rising wage gap

The recent phenomenon of widening skilled–unskilled wage gap in both North and South has been either explained by a technological change or by increasing trade or globalization. The paper provides a new explanation and emphasizes that it is neither technology nor trade alone but both that have contributed to the widening wage inequality. It argues, using a two-country occupational choice model, that any technological improvement in North results in a rise in the skilled–unskilled wage gap in North via an increase in the productivity of skilled labor followed by a rise in the same in South via trade or the outsourcing activities of the northern firms. The extent of outsourcing or the number of northern firms that outsource jobs to South is endogenously determined in the model. The paper also analyzes some major economic impacts of such a technological upgradation in North on the southern economy.     

The Choice of Technology and Equilibrium Wage Rigidity

In this general equilibrium model, firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Capital and labor are the two factors of production. The existence of efficiency wages leads to unemployment. The model is able to explain some interesting observations of the labor market. First, even though there is neither long-term labor contract nor costs of wage adjustment, wage rigidity is an equilibrium phenomenon: an increase in the exogenous job separation rate, the size of the population, the cost of exerting effort, and the probability that shirking is detected will not change the equilibrium wage rate. Second, the equilibrium wage rate increases with the level of capital stock. Third, a higher level of capital stock does not necessarily reduce the unemployment rate. That is, there is no monotonic relationship between capital accumulation and the unemployment rate.     

Monopoly,intermediate goods and the pure theory of international trade

Conclusion In a model with two traded good sectors between which intersectoral flows of intermediate goods are allowed and with a monopolized non-traded good sector, the wage rate in terms of two traded goods increases and the rental of capital in terms of two traded goods decreases when the price of relatively more labor intensive traded good sector increases, though nothing definite can be said about the direction of change in the wage rate and rental in terms of the non-traded good. When prices of traded goods are kept constant and labor and/or capital increase(s), output of the non-traded good sector increases provided that the non-traded good is not inferior, having income elasticity of demand less than unity. The factor intensity condition for the traded goods is in general not sufficient for the validity of the Rybczynski theorem to hold with respect to net outputs of the traded goods. We have derived sufficient conditions for the magnification effect to be observed with respect to net outputs of the traded good sectors. Specifically, we have shown that the factor intensity condition (23) is sufficient for the magnification effect to prevail when only labor increases.     

Relative wages and trade-induced changes in technology

We develop a model where trade liberalization leads to skill-biased technological change, which in turn raises the relative return to skilled labor. When firms get access to a larger market, the relative profitability of different technologies changes in favor of the more skill-intensive technology. As the composition of firms changes to one with predominantly skill-intensive firms, the relative demand for skilled labor increases. This way, we establish a link between trade, technology and relative returns to skilled and unskilled labor.     

Who is afraid of capital mobility? on taxation of labor income and the level of public services in an open economy

This paper deals with the effects of international capital mobility on the taxation of labor income and on the size of the public sector. It employs a model of the labor market where national trade unions set the wage level in their country and national governments set the tax rate of a proportional labor-income tax. The tax revenues are used to finance a public good and unemployment benefits. In this model, competition between the national trade unions caused by international capital mobility leads to full employment, and the governments supply the public good on the first best level. As no unemployment benefits have to be financed, the tax on labor income may decline with the introduction of capital mobility. These tax cuts may even overcompensate the unions for the wage decline.     

International outsourcing when labour markets are unionized

Abstract. We consider the implications of international outsourcing in a simple general equilibrium model where the wage rate is the outcome of negotiations between a firm and a trade union. The effects of potential, but non‐realized, international outsourcing, is a reduction in the wage rate and an increase in employment. Aggregate welfare increases, but the trade union becomes worse off while owners of capital become better off. Realized international outsourcing gives rise to an increase in the wage rate and a reduction in employment. Aggregate welfare decreases, but the trade union becomes better off, while owners of capital become worse off.