Trade and Industry

Working Paper 5 - 2005: Ramsey Model of Barriers to Growth and Skill-Biased Income Distribution in South Africa

  • Year: 2005
  • Publication Author(s): Jorn Rattso; Hildegunn Stokke
  • Countries and Regions: South Africa

This paper integrates two mechanisms of economic growth barriers to international spill-overs and skill-biased effects on the income distribution. South Africa (SA) is an interesting case study because of dramatic changes in international barriers over time and policy focus to productivity and distribution. Barriers affect the balance between innovation and adoption in the productivity growth and thereby the skill bias. The productivity dynamics and the distributional implications are investigated in an inter-temporal Ramsey growth model. The model offers a calibrated tariff equivalence measure of the sanction effect and allows for counter-factual analysis of "no-sanctions".

Increased openness is shown to reduce barriers to technology adoption, leading to skill-biased economic growth and worsened income distribution. The result is consistent with the observation that economic growth under sanctions has been slow and with an increase in the relative wage of unskilled labour. The trade-off between barriers and skill bias, foreign spill-over driven by productivity growth and income distribution is obviously a challenge for growth policy.