Free trade zones with Harris-Todaro unemployment A note on Young-Miyagiwa☆
TL;DR: In this article, the Young-Miyagiwa results for an economy with a free trade zone and Harris-Todaro unemployment were generalized by incorporating intersectoral mobility of domestic capital and an upward sloping supply function of foreign capital.
Abstract: This paper attempts to generalise the Young-Miyagiwa results for an economy with a free trade zone and Harris-Todaro unemployment by incorporating intersectoral mobility of domestic capital and an upward sloping supply function of foreign capital. Our analysis reveals, that under reasonable assumptions, creating a free trade zone may lead to a loss in national welfare. Further, there may arise a conflict between the twin objectives of increasing employment and increasing national welfare.
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TL;DR: In the last three decades, the effects of export-oriented industrialization have called into question the once popular import substitution strategies as mentioned in this paper and this change has been parallel to the development of Export Processing Zones (EPZs).
Abstract: In the last three decades, the effects of export-oriented industrialization have called into question the once popular import substitution strategies. This change has been parallel to the development of Export Processing Zones (EPZs). Though initially found in a small number of countries, mainly ASEAN ones, such as Hong Kong (China), the Republic of Korea, and Singapore, EPZs are now found in more than 90 countries. The EPZ's role is typically seen as an instrument for expanding and modernizing the host economy through additional investment/capital formation, technology transfer, and employment generation. In addition to these direct effects, EPZs are expected to create ripple effects on the rest of the economy. The objective of this report is to update some issues and studies on export processing zones (EPZs). It first provides a brief overview of trends in EPZs and then discusses a series of issues such as investment and types of industry in EPZs (incentive scheme, foreign ownership, types of industry, and labor composition), technology transfer (backward linkages and skill formation), and workers in EPZs (wages, working conditions, and trade unions). In the last section, the report discusses lessons from different EPZ experiences and the future agenda.
94 citations
TL;DR: In this paper, the authors examine the role of the state as entrepreneur and institutional entrepreneur in the Middle East using historical event sequencing methodology and seek to understand the rise of Dubai and the United Arab Emirates as a context for international entrepreneurship.
Abstract: We examine the role of the state as entrepreneur and institutional entrepreneur in the Middle East. Using historical event sequencing methodology we seek to understand the rise of Dubai and the United Arab Emirates as a context for international entrepreneurship. We build on ideas at the intersection of international entrepreneurship and institutional theory to develop a set of propositions that enhance our understanding of international entrepreneurship. We provide implications for the management of both global and local legitimacy, resource mobilization, and agency as well as the strategic deployment of an institutional infrastructure to create and enable entrepreneurship.
91 citations
Cites background from "Free trade zones with Harris-Todaro..."
...Contemporary literature on free zones has focused on topics such as whether free zones enhance the host country’s economy (Young & Miyagiwa, 1987) and their contribution to unemployment (e.g., Chaudhuri & Adhikari, 1993)....
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TL;DR: In this paper, the authors analyze the export processing zones (EPZs) from a worldwide perspective and drawlessons from the accumulated experience in several countries, arguing that developing countries can take advantage of the opportunities provided by EPZs for the acquisition of superior technology, upgrading of labor and managerial skills, and greater access to foreign markets.
Abstract: This paper analyzes Export Processing Zones (EPZs) from a worldwide perspective and drawslessons from the accumulated experience in several countries. It argues that developingcountries can take advantage of the opportunities provided by EPZs for the acquisition ofsuperior technology, upgrading of labor and managerial skills, and greater access to foreignmarkets. The paper then examines the development and economic significance of EPZs andsimilar export-oriented regimes in Central America. This analysis shows that during the 1990sthe economic significance of EPZs and other export-oriented regimes increased rapidly,although not uniformly, throughout Central America. The paper ends with a series ofconsiderations and policy proposals for EPZs development in the region. Among other policies,this paper focuses on the promotion of industry diversification of export-oriented activities, onthe development of stronger backward linkages, and on the upgrading of the export-orientedlegislation in Central America.Keywords: Export-Oriented Regimes, Export Processing Zones, Maquila, Central America,Industrial DevelopmentMauricio Jenkins is a faculty member at INCAE.Gerardo Esquivel is a Development Associate at the Harvard Institute for InternationalDevelopment (HIID) and Macroeconomics Researcher in the Central America Project.Felipe Larrain is the Robert F. Kennedy Visiting Professor of Latin American Studies at theKennedy School of Government, Harvard University and the Director of the Central AmericaProject at HIID.
68 citations
Cites background from "Free trade zones with Harris-Todaro..."
...C E N T R A L A M E R I C A P R O J E C T 13 Other extensions of the earlier models include the introduction of unemployment (Young and Miyagiwa, 1987), and capital mobility (Chaudhuri and Adhikari, 1993)....
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...C E N T R A L A M E R I C A P R O J E C T Other extensions of the earlier models include the introduction of unemployment (Young and Miyagiwa, 1987), and capital mobility (Chaudhuri and Adhikari, 1993)....
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01 Jan 2004
TL;DR: In this article, the authors discuss the extent of the structural change, its causes and implications for policy and theory due to the rise of trade in intermediate goods and argue that for industrial upgrading, countries cannot solely rely on inward foreign direct investment and a balance is needed between firm market power and profits and competitive pressure.
Abstract: The paper discusses the extent of the structural change, its causes and implications for policy and theory due to the rise of trade in intermediate goods. It emphasizes theories to be more focused on the competitive struggle of absolute advantage and externalization. This entails industrial, competition, and labour market policies at national levels aimed at producing profit and wage growth, which is needed for long-term economic growth through the building of skills, knowledge-based assets, infrastructure, and demand. Referring to past success cases, the paper argues that for industrial upgrading, countries cannot solely rely on inward foreign direct investment and a balance is needed between firm market power and profits and competitive pressure, which promotes knowledge-asset creation. Policy implications include promoting R&D, skill development in production and management, and very specific competition policy.
41 citations
References
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TL;DR: In this paper, the authors examined why rural-urban labor migration persists and is even increasing in many developing nations despite the existence of positive marginal products in agriculture and significant levels of urban unemployment, and concluded that in the absence of wage flexibility an optimal policy would include both partial wage subsidies or direct government employment and measures to restrict free migration.
Abstract: This study examines why rural-urban labor migration persists and is even increasing in many developing nations despite the existence of positive marginal products in agriculture and significant levels of urban unemployment. Conventional economic models have difficulty reconciling rational behavioral explanations with growing levels of urban unemployment in the absence of absolute labor redundancy in the overall economy. This paper formulates a 2-sector model of rural-urban migration which recognizes the existence of a politically determined minimum urban wage at levels substantially higher than agricultural earnings. The distinguishing feature of the model is that migration proceeds in response to urban-rural differences in expected earnings with the urban employment rate acting as an equilibrating force on such migration. The overall model is used to demonstrate 1) that given the politically determined high minimum wage the continued existence of rural-urban migration in spite of substantial urban unemployment represents an economically rational choice on the part of the individual migrants and 2) that economists standard policy recommendation of generating urban employment opportunities through the use of "shadow prices" implemented by means of wage subsidies or direct government hiring may lead to a worsening of the urban unemployment problem. Welfare implications of alternative policies associated with various programs to retain rural population are assessed under the assumption that the full wage flexibility suggested by economic theory is politically unfeasible; it is concluded that in the absence of wage flexibility an optimal policy would include both partial wage subsidies or direct government employment and measures to restrict free migration. The basic model is a 2-sector internal trade model with unemployment the 2 sectors being the permanent urban sector which specializes in production of manufactured goods and the rural which either uses all available labor to produce agricultural goods or exports part of the labor to the urban sector. It is assumed that the typical migrant retains his ties to the rural sector but the assumption is not necessary for the argument.
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413 citations
TL;DR: In this article, the authors report a model of the Harris-Todaro variety in which capital is mobile and the urban wage is endogenous, and extend the central theorems of trade to their model and also present formulae for the shadow wage and shadow rental.
Abstract: We report a model of the Harris-Todaro variety in which capital is mobile and the urban wage is endogenous. Our model subsumes several other models presented in the literature. We extend the central theorems of trade to our model and also present formulae for the shadow wage and shadow rental. Our principal findings include (a) nonexistence of equilibrium in an important specialization of the model; (b) a factor-price and unemployment rate equalization theorem: and (c) an identical subsidy to labor but a differential subsidy to capital for obtaining a second-best optimum.
106 citations
TL;DR: In this paper, the authors show that the value of national output at world prices increases with the formation of a duty-free zone which involves the reduction of tariffs on intermediate imports into the zone.
Abstract: A number of authors have suggested that the formation of a duty-free zone may reduce the welfare of the host country. Their analyses assumed full employment. For a country suffering unwemployment of the Harris-Todaro type, we show that the value of national output at world prices increases with the formation of a duty-free zone which involves the reduction of tariffs on intermediate imports into the zone.
85 citations
TL;DR: In this article, the authors show that if a country forms a duty-free zone by lowering tariffs on intermediate goods and taxes on foreign capital used in the zone, then resources are attracted from the surrounding domestic zone, which can worsen the effects of distortions due to the tariffs remaining in the domestic zone and can lower the host country's national income and welfare.
Abstract: If a country forms a duty-free zone by lowering tariffs on intermediate goods and taxes on foreign capital used in the zone, then resources are attracted from the surrounding domestic zone. This can worsen the effects of the distortions due to the tariffs remaining in the domestic zone and can lower the host country's national income and welfare. This tends to occur if: (1) there is less substitutability between the intermediate and labor than between these factors and capital, (2) there is currently a small foreign-owned sector in which the share of labor in total costs is large relative to the share of the imported intermediate in the foreign sector and relative to the share of labor in total costs in the domestic zone. Ironically, under the latter circumstances, the host country is likely to regard a duty-free zone as an attractive option.
55 citations