Document type
Working paperPublication date
Publication license
Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/113164
Industrial Policy and the Timing of Trade Liberalization
Journal Title
Director/Tutor
Journal ISSN
Volume Title
Related resource
Abstract
In a closed (open) economy with a learning-by-doing externality in the manufacturing sector, Matsuyama (1992) found a positive (negative) link between the level of agricultural productivity and economic growth. We extend that framework by introducing a labor subsidy to induce industrialization. We make three contributions to the existing literature. First, we show that a comparative advantage in manufacturing is not a necessary condition for a small open economy to industrialize. Relative sectoral TFP growth determines whether the fraction of labor in manufacturing increases over time. Second, the timing of trade liberalization determines structural development and the use of a labor subsidy can allow a small open economy to industrialize early. Third, we analyze the labor subsidy when there is trade among two open economies. We find that there exists a unique subsidy which enables both economies to industrialize. Therefore, a country with a comparative advantage in producing the manufactured good could benefit from their trading partner using labor subsidies compared to not trading with them at all.
Subject (English)
Citation
Citation
HOLLSTEIN, Till Ferdinand and ESTÉVEZ, Kristian. Industrial Policy and the Timing of Trade Liberalization. UB Economics – Working Papers. 2017. Vol. E17/361. ISSN 1136-8365. [consulted: 12 of June of 2026]. Available at: https://hdl.handle.net/2445/113164