The curse and blessing of fixed specific factors in small-open economies

Guilló, María Dolores; Perez-Sebastian, Fidel

Abstract

This paper investigates how a country's specific-factor endowment affects its long-run economic performance. We build an open-economy version of the two-sector neoclassical growth model in which we introduce fixed industry-specific inputs in both activities. We show that differences in input shares between sectors can contribute to explain why nations that seem to have similar factor endowments can show very different income levels. In particular, under (productivity-adjusted) factor-price equalization, larger amounts of factors specific to the industry with a lower (larger) labor share lead the economy to enjoy larger (smaller) long-run income levels. The model can also account for overtaking episodes between countries along their development paths. © 2005 Elsevier B.V. All rights reserved.

Citation

Guilló, M. D., & Perez-Sebastian, F. (2007). The curse and blessing of fixed specific factors in small-open economies. Journal of Development Economics, 82(1), 58-78. https://doi.org/10.1016/j.jdeveco.2005.11.002

• Journal Article Type: Article
• Acceptance Date: Nov 9, 2005
• Online Publication Date: Jan 9, 2006
• Publication Date: 2007-01
• Deposit Date: Nov 4, 2020
• Journal: Journal of Development Economics
• Print ISSN: 0304-3878
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 82
• Issue: 1
• Pages: 58-78
• DOI: https://doi.org/10.1016/j.jdeveco.2005.11.002
• Keywords: Small-open economy; Specific inputs; Long-run income
• Public URL: https://hull-repository.worktribe.com/output/3623199
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0304387805001616?via%3Dihub