Imperfect labor mobility and the trickle-down effect in international trade
Purpose: Unlike the common belief in the so-called “trickle-down effect,” trade-induced output growth in a small open economy does not necessarily improve the domestic welfare of the economy. The purpose of this paper is to analyze the conditions under which the trickle-down effect does not work properly such that the connection between trade-induced output growth and welfare improvement is broken. Design/methodology/approach: This paper introduces an inter-sectoral migration barrier in the general equilibrium model and conducts various simulation experiments under reasonable parameter values. Findings: This paper demonstrates that subsidizing export industries may raise the total value-added of an economy but deteriorate aggregate welfare. This worsens especially when the supply of non-tradable domestic goods is inelastic, and the demand for them is more substitutable by tradable goods. Practical implications: To reinforce the trickle-down effect, it is necessary to facilitate efficient labor reallocation and to induce capitalization in the non-tradable sector. Originality/value: That output growth and welfare improvement do not always move in the same direction requires a reappraisal of the former common belief on the trickle-down effect which emphasizes output growth as an indicator of welfare improvement.
Year of publication: |
2018
|
---|---|
Authors: | Hong, Sungwan ; Oh, Soo Hyun ; Sim, Seung-Gyu |
Published in: |
Journal of Korea Trade. - Emerald, ISSN 1229-828X, ZDB-ID 2884170-0. - Vol. 22.2018, 1 (05.03.), p. 68-83
|
Publisher: |
Emerald |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Technology Licensing and Environmental Policy Instruments : Price Control versus Quantity Control
Sim, Seung-Gyu, (2020)
-
Global Warming and Border Carbon Adjustments
Hong, Sungwan, (2020)
-
Park, Geunhwan, (2019)
- More ...