Despite widespread agreement among economists that labor-intensive manufacturing has contributed mightily to rapid development in China and other fast-growing economies, most developing countries have had little success in raising the share of manufacturing in production, employment, or exports....

Despite widespread agreement among economists that labor-intensive manufacturing has contributed mightily to rapid development in China and other fast-growing economies, most developing countries have had little success in raising the share of manufacturing in production, employment, or exports....

We consider the fiscal multiplier and spillover in an environment in which two countries are caught simultaneously in a liquidity trap. Using an optimizing two-country sticky price model, we show that the fiscal multiplier and spillover are contrary to those predicted in textbook economics. For...