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

Elvio Accinelli; Edgar Sánchez Carrera; Laura Policardo; Osvaldo Salas

doi:10.3934/jdg.2019013

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2019, Volume 6, Issue 3: 179-194. Doi: 10.3934/jdg.2019013

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

1.
Facultad de Economía UASLP, Av. Pintores S7N, San Luis Potosí, CP 78280, México
2.
DESP University of Urbino Carlo Bo, Italy and Research member at UAdeC, México
3.
Ministry of Economy and Finance, Italy
4.
School of Public Administration, Universiry of Gothemburg, Sweden

^* Corresponding author: Elvio Accinelli
^* Corresponding author: Elvio Accinelli

Received: December 2018

Published online: July 2019

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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Abstract

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.

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

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Figure 1. Two countries each one with two specialized industries

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Figure 2. A country in poverty trap

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References

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