Rational underdevelopment: regional economic disparities under the Heckscher-Ohlin Theorem

This paper analyzes how differences in regional development arise through technological variations and changes. Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored migration, elasticities, multidimensional factors and inputs. This study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two regions, with two sectors, in two periods. The regions have different factor and technology endowments. The first region has a technology sector, and the second is a technology laggard. Once a new technology that can potentially benefit both regions is introduced, the technology-endowed region offers financial transfers to the technologically lagging region. This equalizes regional incomes but also reduces the possibility that the laggard will adopt the new technology and decrease its developmental disadvantage. We also discuss the influence of mobile factors, which reduce regional inequality. The results show that rational underdevelopment extends beyond wage subsidies to mobile factors and capital. The analysis has implications for economic policies aimed at reducing inter-regional inequality.     

A Note on Viable Proposals*

Sengupta and Sengupta (“Viable Proposals,”International Economic Review 35 (1994), 347–59.) consider a payoff vector of a TU‐game as a viable proposal if it challenges each legitimate contender. They show that for each game the set of viable proposals is nonempty. Their proof, however, has a flaw. I present a proof based upon a result by Kalai and Schmeidler (“An Admissible Set Occurring in Various Bargaining Situations,”Journal of Economic Theory 14 (1977), 402–11) .     

A Note on Exchange Rate Trend-Stationarity *

This note extends Goodfriend (1987) to a small open economy to demonstrate that the exchange rate may be non-trend-stationary if the monetary authorities attempt to smooth both the price level and the exchange rate. [431]     

A Note on Retrospectivity and the Tax System*

The legitimacy or otherwise of retrospective tax legislation has become a topical issue in Australian tax reform debates. This note considers the economic costs of permitting this budgetary practice. While under certain circumstances the standard welfare cost of the tax system may be reduced by retrospective announcement of tax arrangements, the costs of forming expectations. required by the possibility of retrospective tax legislation lead to a reduction in the value of economic activity.     

A Note on Aggregate Investment in Australia*

The purpose of this paper is to explore the relevance of Tobin's ‘q theory’ of investment in explaining aggregate investment in Australia, over the period from December 1966 to December 1986. Using standard capital stock data, the q theory performs poorly. However, the cost of adjustment model implies that the conventional capital stock data need to be revised to allow for these adjustment costs. Once this is done, it is found that the q theory explains a statistically significant (although small) proportion of the movements in aggregate investment The residual behaviour of investment is well explained by an accelerator model     

A Note on Factors Influencing the Utilization of Bankcard*

This note is an empirical examination of the nature of factors influencing the utilization of credit cards in Australia. Cross-section data from a 1980 survey are employed in an attempt to determine what individual characteristics increase the probabilities of holding cards and using extended credit facilities. Aggregative time-series analysis seeks to explain the trends in Bankcard financing of various types of expenditure.     

A Note on the Existence of a Competitive Optimal Output*

The question of the existence of a competitive optimum under conditions of price and technological uncertainty is examined. Necessary and sufficient conditions covering all but a ‘borderline’ indeterminate case are derived.     

A Note on Auction Quotas with a Foreign Duopoly*

A country importing a good from foreign duopolists may improve its welfare by imposing a quota on the good at the free trade quantity and giving a fraction of the quota licences to the duopolists while auctioning off the rest.     

A Note on Strategic Trade Policy and Endogenous Quality Choice*

This paper shows that some of the main policy implications in Park (2001 ) and Zhou, Spencer, and Vertinsky (2002 ) are sensitive to their assumptions on marginal production costs. The unilaterally optimal policy for investment towards quality improvement is analyzed, assuming constant and non‐negative marginal production costs under vertically differentiated international duopoly. If marginal production costs are different across firms, the optimal policy for each exporting country may be opposite in its sign from that shown by the existing papers under Bertrand competition. The policy reversal may also occur for the low‐quality exporting country under Cournot competition.