The Implications of Rybczynski’s Theorem for Government Spending, Learning by Doing, and Labor Mobility
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The evolution of a small open economy or region with labor mobility and dynamic scale economies in the high-tech sector is analyzed using the neoclassical 2×2-model. Government services are inputs to private production and influence specialization according to Rybczynski’s theorem. This effect is reinforced by dynamic scale economies. Empirically observed differences in regional development and specialization are explained by diverging government policies and/or history-dependent factors. Despite of diverging wage rates, diversified regions and regions specialized in low-tech production may coexist with a common level of per capita incomes.
Keywordsdynamic scale economies migration specialization
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