Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89507
Authors: 
Di Maio, Michele
Valente, Marco
Year of Publication: 
2006
Series/Report no.: 
LEM Working Paper Series 2006/05
Abstract: 
We present a novel argument demonstrating that when trade is characterized by uncertainty the comparative advantages doctrine is misleading and a positive level of diversification is growth enhancing. Applying a result developed in the mathematical biological literature, we show that, in Ricardian trade model in which capital available for investment depends on previous periods returns, incomplete specialization is optimal. We also demonstrate that, in this case, the decentralized solution is characterized by an inefficiently high level of specialization with respect to the social optimal one. Finally, we present a taxation scheme that, reconciling individual incentives and social optimum, is able to induce individual agents to adopt the optimal specialization strategy, i.e. the one that maximizes the country growth rate.
Subjects: 
uncertainty
specialization
growth
government
JEL: 
F19
O49
D80
H20
Document Type: 
Working Paper

Files in This Item:
File
Size
803.38 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.