Free Mobility of Capital and Labor Force in a Two-Country Model: The Dynamic Game” for Growth

In this paper, we consider a two-country and two-sector economy, where firms can choose to be innovative or not innovative, and workers to be skilled or unskilled. Using a dynamic game, we argue that exploiting the comparative advantages a country has in producing goods that use the most abundant factor of production, free mobility of capital and labour is beneficial for economic growth. However, if a country has a comparative advantage in a sector that uses intensely unskilled labour (which is the case of several underdeveloped economies), a poverty trap may arise. For this reason we argue that national Governments must ensure the technological development to improve competitiveness and therefore a social optimal use of the comparative advantages.

Policardo, Laura (author)
Sanchez Carrera, Edgar (author)
Salas, Osvaldo,1953Gothenburg University,Göteborgs universitet,Förvaltningshögskolan,School of Public Administration(Swepub:gu)xsalos (author)
Göteborgs universitetFörvaltningshögskolan (creator_code:org_t)

In:The Journal of Dynamics and Games: American Institute of Mathematical Sciences (AIMS)6:3, s. 179-1942164-60662164-6074

By the author/editor: Accinelli, Elvio; Policardo, Laura; Sanchez Carrera, ...; Salas, Osvaldo, ...

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