Working Paper, University of Massachusetts, Department of Economics 2008-10
Using a modified version of the dependent economy framework, this paper analyzes a stylized small economy that is significantly open to trade and investment flows. The analysis, which is inspired by the structure of Cambodia.s economy and ongoing eþorts by international organizations to raise labor standards in that country, initially classi.es the economy into three sectors: a manufacturing sector that produces tradable goods, a sector that produces (tourism-related) tradable services, and a rural sector that produces non-tradables. By assuming sectoral differences based on stylized facts, we attempt to analyze the consequences of various shocks in a comparative static framework. Furthermore, we evaluate the short-run effects of raising labor standards. Finally, we explore the impact of higher standards in the manufacturing sector on the near- and long-term prospects of the economy using comparative dynamic analysis to analyze changes in output, relative prices, income distribution and accumulation.