The name is absent



production in that sector and thus it keeps exporting the primary commodity
Y. ■

The proposition identifies four type of economies. Sub-cases (la), (2a)
and (3a) identify economies for which it is always optimal to export the
high-tech product while sub-cases (lc), (2b) and (3c) identify economies for
which it is always optimal to export the primary commodity. In contrast,
sub-cases (lb) and (3b) identify economies for which a change in the patterns
of trade is optimal.

Moving up the chain: Notice that case lb is the only instance where it
would be optimal for the government to adjust its education policy in order
to reverse the patterns of trade so that the economy ‘moves up the chain’.
What prevents the government from pursuing such a policy is the binding
budget constraint. We show below that if the government is able to borrow
from abroad it would be beneficial to do so. The following proposition
demonstrates that the welfare gains resulting from a change in the patterns
of trade will be higher than the welfare loss incurred from a lump-sum tax
imposed to finance the loan.

Proposition 4 Suppose that pAp*pA*. Then it is optimal to finance
increased educational expenditures and move up the chain of comparative
advantage.

Proof. We know that in this case it is optimal for the economy to
maximize the production of the high-tech product; thus
Θa = fifλ, θpn =
0, and Θa = ð. Define welfare without borrowing as Wn and welfare
with increased educational expenditures financed by foreign borrowing as
W
ft.Using (6) we find that

Wn


∣(p)


+ Vbp*
c


The new welfare level after an increase in the budget by b that is financed
by a lump-sum tax, is equal to

Wft = ∣(p*)"1


c b b          b + ∆b    .

---------(1 b) +--(Vp ∆b)
c                     c

where the increase in the budget allows for a greater proportion of agents
receiving the high level of education. Subtracting the former expression from

17



More intriguing information

1. Telecommuting and environmental policy - lessons from the Ecommute program
2. On the Desirability of Taxing Charitable Contributions
3. MULTIPLE COMPARISONS WITH THE BEST: BAYESIAN PRECISION MEASURES OF EFFICIENCY RANKINGS
4. Magnetic Resonance Imaging in patients with ICDs and Pacemakers
5. BUSINESS SUCCESS: WHAT FACTORS REALLY MATTER?
6. The name is absent
7. Consumption Behaviour in Zambia: The Link to Poverty Alleviation?
8. The name is absent
9. Towards Learning Affective Body Gesture
10. Non-causality in Bivariate Binary Panel Data
11. Estimated Open Economy New Keynesian Phillips Curves for the G7
12. The name is absent
13. Expectation Formation and Endogenous Fluctuations in Aggregate Demand
14. The Social Context as a Determinant of Teacher Motivational Strategies in Physical Education
15. The name is absent
16. Prizes and Patents: Using Market Signals to Provide Incentives for Innovations
17. KNOWLEDGE EVOLUTION
18. The name is absent
19. A Note on Costly Sequential Search and Oligopoly Pricing (new title: Truly Costly Sequential Search and Oligopolistic Pricing,)
20. DISCUSSION: POLICY CONSIDERATIONS OF EMERGING INFORMATION TECHNOLOGIES