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.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

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