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Catching-up and Regulation in a Two-Sector Small Open Economy

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  • van de Klundert, Theo
  • Smulders, Sjak

Abstract

Deregulation is often aimed at reducing mark-up pricing in technologically stagnant sheltered sectors. The paper shows that this may decrease the process of catching-up and welfare since it shifts resources away from R&D-intensive tradables sectors. Catching-up and deregulation are analyzed in an R&D-based growth model that allows for international capital mobility, trade, and spillovers. Knowledge spillovers raise the productivity of R&D in the exposed sector which results in catching-up. In the long run, the economy grows at the exogenous world growth rate. Capital mobility speeds up convergence. Temporary shocks have long-lasting effects as the economy exhibits hysteresis. Copyright 1999 by Blackwell Publishing Ltd.

Suggested Citation

  • van de Klundert, Theo & Smulders, Sjak, 1999. "Catching-up and Regulation in a Two-Sector Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 7(3), pages 431-454, August.
    • Handle: RePEc:bla:reviec:v:7:y:1999:i:3:p:431-54
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    1. Jerbashian, Vahagn, 2021. "Intellectual Property And Product Market Competition Regulations In A Model With Two R&D Performing Sectors," Macroeconomic Dynamics, Cambridge University Press, vol. 25(1), pages 59-80, January.
    2. repec:bla:germec:v:7:y:2006:i::p:135-161 is not listed on IDEAS

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