A tale of two countries: Directed technical change, trade and migratory movements

Duarte Semedo Leite, Oscar Afonso and Sandra T. Silva

Economic Modelling, 2019, vol. 83, issue C, 173-194

Abstract: We propose a North-South model that reconciles trade and production strategies, flows of innovators and the path of economic divergence, or convergence, between countries. We explain the mechanisms behind these forces and show how the technological and economic gaps can be reversed if southern countries stop imitating northern goods and, instead, produce complementary goods. Such a strategy of complementarity on production yields the necessary incentives to innovators to engage in research in southern countries, which enhances the catching-up process between countries. It is also shown that migratory movements of unskilled labor between countries are also relevant to understand the dangers and benefits of different trade strategies for economic growth. This paper suggests a positive (negative) correlation between technological innovation in the North (South) and the level of substitutability in production, while under complementarity, technological innovation catches up in the South, therefore fostering the economic catching up process. A positive correlation between inflows of skilled and unskilled labor and substitutability of production between countries is also verified.

Keywords: Direct technical change; Economic growth; Innovation; Migration; Trade (search for similar items in EconPapers)
JEL-codes: F16 F22 J31 O31 O33 O47 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:83:y:2019:i:c:p:173-194

DOI: 10.1016/j.econmod.2019.02.009

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