Trade and Development in a Labor Surplus Economy

Edward B Barbier 1 , 1  and Michael Rauscher 2 , 2
  • 1 University of Wyoming, ebarbier@uwyo.edu
  • 2 Rostock University, michael.rauscher@uni-rostock.de

Abstract

This paper looks at a model in which two countries trade agricultural and manufactured commodities. The manufactured-goods sector produces with increasing returns to scale under conditions of monopolistic competition. It is shown that an increase in land endowment (or an increase in agricultural productivity) can have negative welfare implications for both countries. This outcome can result under three different scenarios: asymmetries across countries, i.e. a North-South model, a neoclassical labor market instead of a Lewisian market in the home country, and alternative utility functions.

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The B.E. Journal of Economic Analysis & Policy (BEJEAP) is an international forum for scholarship that employs microeconomics to analyze issues in business, consumer behavior and public policy. Topics include the interaction of firms, the functioning of markets, the effects of domestic and international policy and the design of organizations and institutions.

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