Service liberalization, endogenous industrial composition and modernization

Abstract

This paper presents a simple two-sector two-factor model with endogenously determined industrial composition. It is shown that by shrinking the cone of diversification, service liberalization may enable the economy to switch from equilibrium where both traditional and modern goods are produced to another where specialization in the modern good takes place.

Notes

For some excellent discussions on the impact of service liberalizations in Latin America, see Raventos (1998), Alexander and Estache (2000), among others.