Exogenous Technology Progress of a Large Developing Country and the Welfare of a Developed Country in an Open Economy
18 Pages Posted: 18 Mar 2009
Date Written: March 15, 2009
Using the standard Ricardian model, we developed the numerical result of Samuelson (2004) with general conditions. Specifically, our analysis shows that, the cumulative technological progress of the South will undermine the welfare of the North even before the relative productivities of the two are equalized. If the technological improvement does not reverse the initial pattern of comparative advantage, free trade is still better than autarky for the North. The negative welfare impact, however, depends on the relative size of the South. Generally the accumulation of the technological progress in a relative small southern country will not be able to lower the real income of the North, given that the latter maintains its original technological leadership.
Keywords: Comparative Advantage, Technological progress, Welfare
JEL Classification: F1
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