Paths of Development and Wage Variations
RSIE Discussion Paper No. 572
32 Pages Posted: 15 Feb 2008
Date Written: November 1, 2007
Abstract
In analyzing the relationship between factor endowments and sectoral per-capita output (the path of development), Schott (2003) showed empirically that the number of cones was neither one nor three but two, and that all countries fall into one of these two cones. This is a puzzle because it is inconsistent with large wage variations across economies. This paper attempts to solve this puzzle, introducing complete and incomplete specialization into a multiple-cone model. Empirical results reveal that factor endowments can explain Heckscher-Ohlin specialization and the wage variations across economies at the same time once the multiple-cone model allows the complete specialization.
Keywords: Paths of Development, Complete Specialization, Multiple Cones, Factor Price Equalization, Intra-industry Heterogeneity, Wage Variations, Japan
JEL Classification: F11, F14, F2, C21
Suggested Citation: Suggested Citation
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