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Why gradualism?

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Forfattere:

Mehlum, Halvor

År:

1998

Referanse:

Journal of International Trade and Economic Development

7:3 pp. 279-297

Summary

A Ramsey model for a two-sector economy, comprising a labour intensive non-traded sector and a capital intensive traded sector, is used to analyse the transition following trade liberalization. Liberalization takes the form of removing a tariff wedge that benefited the non-traded sector. This increases overall productivity of capital in the short run, and demand for labour declines. In the presence of a binding minimum real wage this leads to transitional unemployment. In this case, gradualism - in the form of gradually removing the tariff wedge - can be justified. Through gradualism the protection for the labour intensive non-traded sector is prolonged, leading to reduced unemployment in the transition phase.

Nøkkelord:

Economic reform, gradualism, two-sector economy, transition, unem-ployment

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Kontakt:

halvor.mehlum@econ.uio.no

Finansiering:

Research Council of Norway