Why gradualism?
Link to article:
Authors:
Mehlum, Halvor
Year:
1998
Reference:
Journal of International Trade and Economic Development
7:3 pp. 279-297Summary
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.
Keywords:
Economic reform, gradualism, two-sector economy, transition, unem-ployment
Project:
Oppdragsgiver:Oppdragsgivers prosjektnr.:
Frisch prosjekt:
Contact:
halvor.mehlum@econ.uio.no
Financing:
Research Council of Norway
