Technology gap, real wages, and learning in a balance-of-payments---constrained growth model

Abstract

This paper argues that in developing countries, higher real wages---up to a certain critical point---may enhance the ability of workers to learn from and improve on foreign technology, with positive effects on international competitiveness and on the rate of economic growth consistent with current account equilibrium. Countries whose institutions severely hamper the increase in real wages could be trapped in a low-wage, slow-growth equilibrium. But learning opportunities derived from higher real wages are not boundless. Policies aimed at improving income distribution should be complemented by policies aimed at fostering the international diffusion of technology in order to sustain economic growth in the long run. These interactions between real wages and learning are studied within the context of a balance-of-payments---constrained growth model including two countries (North and South) with different levels of technological development.

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