Trade and Development in a Labor Surplus Economy

Topics in Economic Analysis & Policy, Vol. 7, No. 1, p. 1665, 2007

Posted: 8 May 2008

See all articles by Edward B. Barbier

Edward B. Barbier

Colorado State University, Fort Collins - Department of Economics

Michael Rauscher

University of Rostock - Department of Economics; University of Rostock - Faculty of Business Administration, Economics and Social Sciences; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Abstract

This paper looks at a model in which two countries trade agricultural and manufactured commodities. The manufactured-goods sector produces with increasing returns to scale under conditions of monopolistic competition. It is shown that an increase in land endowment (or an increase in agricultural productivity) can have negative welfare implications for both countries. This outcome can result under three different scenarios: asymmetries across countries, i.e. a North-South model, a neoclassical labor market instead of a Lewisian market in the home country and alternative utility functions.

Keywords: international trade, labor surplus economy, land expansion, monopolistic competition, North-South model

Suggested Citation

Barbier, Edward B. and Rauscher, Michael, Trade and Development in a Labor Surplus Economy. Available at SSRN: https://ssrn.com/abstract=1130448

Edward B. Barbier (Contact Author)

Colorado State University, Fort Collins - Department of Economics ( email )

Fort Collins, CO 80523-1771
United States

Michael Rauscher

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany

HOME PAGE: http://www.wiwi.uni-rostock.de/vwl

University of Rostock - Faculty of Business Administration, Economics and Social Sciences ( email )

Ulmenstr. 69
Rostock, 18057
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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