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The high road and the low road to international competitiveness: Extending the neo-Schumpeterian trade model beyond technology

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  • William Milberg
  • Ellen Houston

Abstract

Extending the neo-Schumpeterian trade model, we estimate a 'social-gap' model for a group of 17 OECD countries over the period 1975-1995. We find that government spending on social protection, employment protection regulations, union density, strike activity, and income security in the labor market (all measured in 'gap' form) are statistically significantly related to changes in international competitiveness. Specifically, we find some support for a Calmfors-Driffil, nonlinear, relation between cooperative labor relations and social spending patterns on the one hand, and international trade (and inward foreign investment) competitiveness on the other, implying that countries with relatively stronger institutional arrangements have better international economic performance than countries in the middle of the scale of conflict and cooperation. Our results indicate that models focusing solely on innovative effort are misspecified, and may suffer from an omitted variable bias caused by the absence of consideration of other institutional factors influencing international trade and investment.

Suggested Citation

  • William Milberg & Ellen Houston, 2005. "The high road and the low road to international competitiveness: Extending the neo-Schumpeterian trade model beyond technology," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(2), pages 137-162.
    • Handle: RePEc:taf:irapec:v:19:y:2005:i:2:p:137-162
    DOI: 10.1080/02692170500031646
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    References listed on IDEAS

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    Cited by:

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    2. Federico Riccio & Giovanni Dosi & Maria Enrica Virgillito, 2023. "Smile without a reason why: functional specialisation and income distribution along global value chains," LEM Papers Series 2023/31, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    3. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing Limited, vol. 32(3), pages 273-299, June.
    4. Keil, Sascha, 2024. "Competing for manufacturing value added: How strong is competitive cost pressure on sectoral level?," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 197-212.
    5. Grodzicki, Maciej J. & Skrzypek, Jurand, 2020. "Cost-competitiveness and structural change in value chains – vertically-integrated analysis of the European automotive sector," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 276-287.
    6. Dogan Kesap & Ali Riza Sandalcilar, 2024. "Panel Causality Analysis of the Relationship among the Rule of Law, Technological Advances, Competitiveness, and Value-Added," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 73(74-1), pages 159-191., June.
    7. Keil, Sascha, 2024. "Assessing the role of non-price factors: Shedding new light on the European competitiveness puzzle," International Economics, Elsevier, vol. 178(C).
    8. Patrick Wagner & Damian Raess, 2023. "South to north investment linkages and decent work in Brazil," LABOUR, CEIS, vol. 37(1), pages 122-159, March.
    9. Salamaga Marcin, 2020. "Econometric Analysis of the Relationship Between Innovation and Foreign Trade Distance in Central and Eastern Europe Countries," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 360-372, June.
    10. Ozay, Ozge, 2015. "Is capital deepening process male-biased? The case of Turkish manufacturing sector," Structural Change and Economic Dynamics, Elsevier, vol. 35(C), pages 26-37.
    11. Grillitsch, Markus & Asheim, Bjørn & Nielsen, Hjalti, 2019. "Does long-term proactive agency matter for regional development?," Papers in Innovation Studies 2019/16, Lund University, CIRCLE - Centre for Innovation Research.
    12. Raess, Damian & Wagner, Patrick, 2022. "South to north investment linkages and decent work in Brazil," Papers 1382, World Trade Institute.
    13. Andrés Maroto Sanchez & Luis Rubalcaba Bermejo, 2006. "Competitiveness and the Kaldor Paradox: The case of Spanish Service Sector," Working Papers 06/06, Instituto Universitario de Análisis Económico y Social.
    14. Asheim, Bjørn & Grillitsch, Markus & Trippl, Michaela, 2016. "Smart Specialization as an innovation-driven strategy for economic diversification: Examples from Scandinavian regions," Papers in Innovation Studies 2016/23, Lund University, CIRCLE - Centre for Innovation Research.
    15. Shaianne T. Osterreich, 2019. "Gender and Comparative Advantage: Feminist–Heterodox Theorizing about Globalization," Economies, MDPI, vol. 7(2), pages 1-12, May.
    16. Paolo Ramazzotti, 2016. "Themes in an institutionalist theory of economic policy," Working Papers 81-2016, Macerata University, Department of Finance and Economic Sciences, revised May 2016.
    17. Arianna Marcolin & Stefano Gasparri, 2024. "Digitalization and employment relations in the retail sector. Examining the role of trade unions in Italy and Spain," European Journal of Industrial Relations, , vol. 30(2), pages 151-178, June.

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    More about this item

    Keywords

    International trade theory; technology gaps; social expenditure; labor relations; JEL Classification: F10; H50; J50;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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