DP1165 The Elixir of Growth: Trade, Non-Traded Goods and Development

Author(s): Patrick Minford, Eric Nowell, Jonathan Riley
Publication Date: May 1995
Keyword(s): Development, Technological Transfer, Unemployment, Unskilled Labour, Wage Dispersion
JEL(s): F11, F21, O11
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1165

Development and convergence is explained as the transfer of technology embodied in machinery, to the manufacturing sector of those developing countries that institute the necessary property rights. The process is modelled within a Heckscher-Ohlin-Samuelson framework with capital mobility and endogenous supplies of immobile factors, skilled and unskilled labour and land. The model suggests a factor-price-based PPP method of measuring developing countries' GDP. Model simulations of the assumed technical transfer to developing countries imply falling wages and employment of unskilled labour in developed countries, combined with improvements in their terms of trade - shared gains from trade combined with a distributional bias.