THE ROLE OF EXPECTATIONS IN A SPECIALIZATION-DRIVEN GROWTH MODEL WITH ENDOGENOUS TECHNOLOGY CHOICE

Shiro Kuwahara () and Akihisa Shibata

Division of Labor & Transaction Costs (DLTC), 2006, vol. 02, issue 01, 55-69

Abstract: Extending the Kim (1989) model of endogenous labor specialization to an overlapping generations model with an endogenous technology choice, we show in this paper that, when the market size and the fixed costs associated with the technologies with labor specialization are small, the growth pattern of this economy depends on worker expectations. In other words, if workers expect low returns of specific human capital, they will not invest in such capital, and the economy will be eventually locked in an underdevelopment trap. On the other hand, if they expect high returns of specific human capital, they invest in such capital, and, as a result, the economy can exhibit long-run growth.

Keywords: Labor specialization; endogenous choice of technology; endogenous growth; development traps (search for similar items in EconPapers)
JEL-codes: C62 D E1 F F11 F12 F16 J2 J3 L O (search for similar items in EconPapers)
Date: 2006
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Working Paper: The Role of Expectations in a Specialization-driven Growth Model with Endogenous Technology Choice (2006)
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DOI: 10.1142/S0219871106000287

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