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A North-South monetary model of endogenous growth with international trade

Author

Listed:
  • Óscar Afonso

    (CEF-UP, CEFAGE-UBI and Faculty of Economics of University of Porto)

  • Tiago Neves Sequeira

    (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics)

Abstract

We devise a North-South endogenous growth model with international trade and money to study the effects of inflation (and monetary policy) on wage inequality, specialization, and growth. The relationship between monetary policy and wage inequality depends on the fact that skilled-production firms are less credit constrained than unskilled-production firms. Interestingly, inflation affects the structure of production by increasing the production share made by skilled-intensive firms, and decreases economic growth. Furthermore, inflation decreases the difference of wage inequality between countries; shrinking the skill premia difference. Moreover, inflation and trade have opposite effects on wage inequality and on specialization: while trade tends to decrease intra-South wage inequality, inflation tends to increase it; while trade tends to increase the number of different intermediate goods produced with unskilled technology in the South; inflation acts the other way around. Results are confirmed quantitatively.

Suggested Citation

  • Óscar Afonso & Tiago Neves Sequeira, 2020. "A North-South monetary model of endogenous growth with international trade," CeBER Working Papers 2020-09, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2020-09
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    More about this item

    Keywords

    Inflation; Wage inequality; North-South trade; CIA constraints; Technological knowledge bias.;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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