The Product Cycle and the World Distribution of Income:Reconsidered

Abstract

In this paper we investigate the effect of labor supply on various distributions of income in a North-South trade model with skilled and unskilled labor. Modifying Lai (1995) 's model by allowing external effects of imitation activity, we have shown there exists the critical value of parameter a below which all the results Lai has shown, especially, an increase in skilled labor supply raises its steadystate relative wage if the elasticity of substitution between goods is sufficiently large hold. And above the critical value, one of the results is reversed, that is, an increase in skilled labor supply reduces its steady-state relative wage. In both cases, nevertheless, North's effort to increase in skilled labor supply can increase the steady-state rate of innovation.