R. Nahuis

Taste for diversity and the optimality of economic growth

Abstract We disentangle the taste for diversity in consumption present in endogenous growth models with expanding product variety from the elasticity of substitution between consumption goods. This seriously affects the welfare analysis of the model. If taste for diversity is relatively small, the market rate of growth may be suboptimally large.

Economic development and trade in the world economy

Abstract Trade with emerging economies may depress wages of unskilled workers in rich countries. This problem has been discussed extensively in recent years. The present paper contributes to that discussion by applying a calibrated model of the world economy (WorldScan) from CPB Netherlands Bureau for Economic Policy Analysis. As appears from a counterfactual analysis trade with developing countries could explain about half of the increase in skill premium observed in some developed economies. Growth in emerging economies is often driven by capital accumulation. The Heckscher-Ohlin theory predicts what may happen in a model with many countries and many goods. However, that theory is based on a number of simplifying assumptions. It remains to be seen if the results are robust if the problem of capital accumulation is analyzed in the context of WorldScan.