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Free mobility of capital and Labor force in a two-country model: The dynamic game for growth

  • * Corresponding author: Elvio Accinelli

    * Corresponding author: Elvio Accinelli 

The authors would like to thank Alejandro Neme as well as an anonymous referee for their useful comments and suggestions to improve this work. Opinions expressed in this publication are those of the authors and do not necessarily reflect the official opinion of the Italian Ministry of Economy and Finance

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  • 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 labor is beneficial for economic growth. However, if a country has a comparative advantage in a sector that uses intensely unskilled labor (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.

    Mathematics Subject Classification: C70, C73, F12, F16, F20, F42, O30.


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  • Figure 1.  Two countries each one with two specialized industries

    Figure 2.  A country in poverty trap

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    [2] E. Accinelli and E. Sánchez Carrera, Strategic complementarities between innovative firms and skilled workers: The poverty trap and the policymaker's intervention, Structural Change Economic Dynamics, 22 (2011), 30-40. 
    [3] E. AccinelliJ. G. Brida and E. Sánchez Carrera, Imitative behavior in a two-population model in advances in dynamic games, Annals of the International Society of Dynamic Games, (2010). 
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    [14] Y.-C. Wang and P. Wang, Barriers to Health and the Poverty Trap, NBER Working paper, 2013.
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