Factor-Biased Technical Change and Specialization Patterns
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Philipps-Universität Marburg
Abstract
We analyze the medium{ and long{run effects of international integra-
tion of capital markets on specialization patterns of countries. For that
purpose, we incorporate induced technical change into a Heckscher{Ohlin
model with a continuum of �nal goods. This provides a comprehensive the-
ory that explains the dynamics of comparative advantages based on differ-
ences in effective factor endowments. Our model constitutes an appropriate
framework for understanding the changes in industrial structure of foreign
trade observed, e.g., in the CEE countries over the last two decades. In
addition, our approach provides a theoretical foundation for the empirical
prospective comparative advantage index (Savin and Winker 2009) with
new insights into the future dynamics of comparative advantages. Even-
tually, the model may serve as a basis to set development priorities in
countries being in the period of transition.
Keywords
Factor-biased technical change, factor mobility, continuum of goods, comparative advantage, innovation, knowledge spillovers.