Global Economic Growth Elastic Labor Supply Knowledge-Books Pdf

GLOBAL ECONOMIC GROWTH ELASTIC LABOR SUPPLY KNOWLEDGE
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498 Wei Bin ZHANG, for the OECD countries Madsen 2007 empirically shows that knowledge spillovers have been. a significant contributor to the TFP convergence among the OECD countries over the period of. 1870 to 2004 Using a multi sector version of the Ricardo Viner model of international trade to. empirically identify the effects of technological change and international trade on the US wage. premium Blum 2008 finds that capital was reallocated to sectors where it is relatively com. plementary to skilled workers Both capital accumulation and technological change are. important for explaining national as well as global economic growth and distribution The pur. pose of this study is to build a global economic growth model with endogenous knowledge and. capital accumulation, As globalization is deepening it is important to provide analytical frameworks for ana. lyzing global economic interactions not only among developed economies but treating the. world as an integrated whole For instance it is important to examine how a developing. economy like India or China may affect different economies as its technology is improved. wealth is accumulated population is increased or how trade patterns may be affected as. technologies are further improved or propensities to save are reduced in developed econo. mies like the US or Japan All these questions are currently well discussed in academics as. well as public As mentioned by Findlay 1984 one topic that was almost entirely absent. from the pure theory of international trade was any consideration of the connection between. economic growth and international trade in the classical literature of economic theory Al. most all the trade models developed before the 1960s are static in the sense that the supplies. of factors of production are given and do not vary over time the classical Ricardian theory. of comparative advantage and the Heckscher Ohlin theory are static since labor and capital. stocks or land are assumed to be given and constant over time It has only been in the last. three or four decades that trade theory has made some systematic treatment of capital accu. mulation or technological changes in the context of international economics According to. the neoclassical growth model a poor economy may catch up with rich ones because of de. creasing marginal product of capital, Most of trade models with endogenous capital and or knowledge are either limited to. two country or small open economies see Wong 1995 Jensen and Wong 1998 Obstfeld. and Rogoff 1998 and Zhang 2008 We will build a multi country trade model with capital. accumulation and knowledge creation in a perfectly competitive global economy As far as. capital is concerned our model is influenced by neoclassical trade theory Trade models. with capital movements are originated by MacDougall 1960 and Kemp 1961 Neverthe. less these early models were limited to static and one commodity frameworks The first. dynamic growth model of trade with capital accumulation and microeconomic foundation. was built by Oniki and Uzawa 1965 The model takes account of accumulating capital. stocks and of growing population within the Heckscher Ohlin type of model It was devel. oped in terms of the two country two good two factor model of trade The model is also. extended to study the dynamics of capital accumulation and the various balance of payments. accounts There is another alternative specification of trade structure in the growth frame. work which allows for the existence of international financial markets and for free trade in. consumption goods and securities but not in investment goods see Wong 1995 Jones and. Kenen 1984 Ethier and Svesson 1986 and Bhagwati 1991 It should be noted that Sorger. 2002 proposed a trade model based on the Solow approach Vellutini 2003 proposes a. trade model to examine possible poverty traps due to capital mobility Many two country. dynamic optimization models with capital accumulation have been proposed to examine the. Global Economic Growth Elastic Labor Supply Knowledge Utilization and Creation with 499. impact of saving technology and various policies upon trade patterns see Frenkel and. Razin 1987 Jensen 1994 Vald s 1995 and Nishimura and Shimomura 2002. Trade economists have recently developed different trade models in which endogenous. growth is generated either by the development of new varieties of intermediate or final. goods or by the improvement of an existing set of goods with endogenous technologies see. Chari and Hopenhayn 1991 Martin and Ottaviano 2001 Nocco 2005 Brecher et al. 2002 and Gustafsson and Segerstrom 2010 These studies attempted to formalize trade. patterns with endogenous technological change and monopolistic competition Within such. frameworks the dynamic interdependence between trade patterns R D efforts and various. economic policies are connected Nevertheless most of these models do not explicitly deal. with both capital and knowledge within the same framework The model is this study is to. integrate the two mainstreams of trade growth within a comprehensive framework In fact. the model in this study is a further development of the two models by Zhang 1992 2008a. The previous studies were only concerned with examining equilibrium and comparative stat. ics analysis without endogenous knowledge This study simulates the model to show how. the system moves over time with endogenous and how the motion of the system is affected. when some parameters are changed This paper is organized as follows Section 2 defines. the multi country model with capital accumulation and knowledge creation Section 3 shows. that the dynamics of the world economy with J countries can be described by J 1 dif. ferential equations As mathematical analysis of the system is too complicated we. demonstrate some of the dynamic properties by simulation when the world economy consists. of three countries Section 4 examines effects of changes in some parameters on the paths of the. global economic dynamics Section 5 concludes the study The analytical results in Section 3. are proved in Appendix,2 THE MULTI COUNTRY TRADE MODEL WITH CAPITAL. AND KNOWLEDGE, Each country has one production sector Knowledge growth is through learning by do.
ing In describing the production sector we follow the neoclassical trade framework It is. assumed that the countries produce a homogenous commodity This follows the Oniki. Uzawa trade model and its various extensions with one capital goods Ikeda and Ono. 1992 Most aspects of production sectors in our model are similar to the neo classical one. sector growth model Burmeister and Dobell 1970 There is only one durable good in the. global economy under consideration Households own assets of the economy and distribute. their incomes to consume and save Production sectors or firms use capital and labor Ex. changes take place in perfectly competitive markets Production sectors sell their product to. households or to other sectors and households sell their labor and assets to production sec. tors Factor markets work well factors are inelastically supplied and the available factors. are fully utilized at every moment Saving is undertaken only by households which implies. that all earnings of firms are distributed in the form of payments to factors of production. We omit the possibility of hoarding of output in the form of non productive inventories held. by households All savings volunteered by households are absorbed by firms We require. savings and investment to be equal at any point of time The system consists of multiple. countries indexed by j 1 J Each country has a fixed labor force N j j 1 J. Let prices be measured in terms of the commodity and the price of the commodity be unity. 500 Wei Bin ZHANG, We denote wage and interest rates by w j t and r j t respectively in the j th country In. the free trade system the interest rate is identical throughout the world economy i e. Behavior of producers, First we describe behavior of the production sections Let Fj t and K j t stand for re. spectively the output level of the production sector and capital stocks employed by country. j We assume that there are three factors knowledge physical capital and labor at each. point of time The production functions are specified as follows. F j t A j Z j t K j j t N j j t A j 0 j j 1 j j 0 j 1 J. in which Z t 0 is the world knowledge stock at time t The total labor supply N j t is. N j t T j t N j, where T j t is the working hours of a worker in country j Here we interpret Z m j j. country j s level of human capital The term Z N j is country j s human capital or quali. fied labor force We see that the production function is a neoclassical one and homogeneous of. degree one with the inputs Here we call m j country j s knowledge utilization efficiency pa. rameter As cultures political systems and educational and training systems vary between. countries m j are different, Markets are competitive thus labor and capital earn their marginal products and firms. earn zero profits The rate of interest r t and wage rates w j t are determined by markets. Hence for any individual firm r t and w j t are given at each point of time The production. sector chooses the two variables K j t and N j t to maximize its profit The marginal condi. tions are given by,r kj A j j Z w j Aj j Z, where kj are the depreciation rate of physical capital in country j and k j t K j t N j t.
Behavior of consumers, Each worker may get income from wealth ownership and wages Consumers make de. cisions on consumption levels of goods as well as on how much to save This study uses the. approach to consumers behavior proposed by Zhang in the early 1990s Let k j t stand for. the per capita wealth in country j Each consumer of country j obtains income. y j t r t k j t w j t T j t j 1 J 2, from the interest payment rk j and the wage payment w j T j We call y j the current income in. the sense that it comes from consumers payment and consumers current earnings from own. ership of wealth The sum of income that consumers are using for consuming saving or. transferring are not necessarily equal to the temporary income because consumers can sell. wealth to pay for instance the current consumption if the temporary income is not sufficient. for buying food and touring the country The total value of wealth that a consumer in country. j can sell to purchase goods and to save is equal to k j t Here we assume that selling and. Global Economic Growth Elastic Labor Supply Knowledge Utilization and Creation with 501. buying wealth can be conducted instantaneously without any transaction cost The disposable. income is equal to,y j t y j t k j t 3, The disposable income is used for saving and consumption It should be noted that the. value k j t i e p t k j t with p t 1 in the above equation is a flow variable Under. the assumption that selling wealth can be conducted instantaneously without any transaction. cost we may consider k j t as the amount of the income that the consumer obtains at time. t by selling all of his wealth Hence at time t the consumer has the total amount of income. equalling y j t to distribute between consuming and saving It should also be remarked that. in the growth literature for instance in the Solow model the saving is out of the current in. come y j t while in this study the saving is out of the disposable income This approach is. discussed at length by Zhang 2008 Zhang has also examined the relations between his ap. proach and the Solow growth theory the Ramsey growth theory the permanent income. hypothesis and the Keynesian consumption function in details. The disposable income is used for saving and consumption At each point of time the. representative consumer would distribute the total available budget among savings s j t and. consumption of goods c j t The budget constraint is given by. c j t s j t y j t 4, Let T0 denote the total available time The time constraint requires that the amounts of. time allocated to each specific use add up to the time available. T j T j T0 j 1 J 5, Substituting 5 into the budget constraints 3 yields.
w j t T j t c j t s j t y j t 1 r t k j t T0 w j t. We can interpret the right hand term as the potential disposable income in the sense. that if the worker devotes all the available time to work how much he can use for consum. ing and saving The term w j T j is the opportunity cost of leisure time Hence the left hand. is the sum of the opportunity cost the expenditure of consumption and the saving At each. point of time households decide the leisure time consumption level and savings subject to. the potential disposable income We assume that utility level U j t is dependent on T j t. c j t and s j t as follows,U j t T j j 0 t c j j 0 t s j j 0 t j 0 j 0 j 0 0. where j j and j are respectively country s propensities to use the leisure time to con. sume goods and to hold wealth Maximizing subject to the budget constraints 6 yields. w j t Tj t j y j t c j t j y j t s j t j y j t,j j j0 j j j0 j j j0 j. where j 0 0 j and j are respectively household s propensities to use the leisure time to. consume and to hold wealth Here for simplicity we specify the utility function with the Cobb. 502 Wei Bin ZHANG, Douglas from It would provide more insights if we take some other forms of utility functions. In this study we fix the preference structure, According to the definitions of s j t the wealth accumulation of the r. KNOWLEDGE UTILIZATION AND CREATION WITH from the pure theory of international trade was any THE MULTI COUNTRY TRADE MODEL WITH CAPITAL AND KNOWLEDGE

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