## Wages, Profitability, and Growth in a Small Open Economy

_IMF Working Papers, May 1, 1990_

## Source details

**Canonical URL:** [Wages, Profitability, and Growth in a Small Open Economy](https://www.imf.org/en/publications/wp/issues/2016/12/30/wages-profitability-and-growth-in-a-small-open-economy-3053)

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## Bibliographic details
- Authors: Bankim Chadha
- Published: May 1, 1990
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451974188.001

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### Summary / Abstract
- Examines the evolution of a rapidly growing small open economy—Singapore—from a labor-intensive, low-technology production base to a capital-intensive, high-technology, knowledge-and-skill-intensive emphasis as it approached the limits of its resource constraints in the labor market.
- Develops a model of endogenous growth for a small open economy that is driven by increases in labor productivity from learning and that allows for the dynamic acquisition of comparative advantage.
- Investigates, within this framework, the effects of various policies and exogenous shocks on the direction and pace of restructuring.

### Model and Analytical Approach
- Endogenous growth model tailored to a small open economy.
- Key driving mechanism: increases in labor productivity from learning (learning by doing).
- Model permits dynamic acquisition of comparative advantage and analyzes sectoral restructuring from labor-intensive to capital- and skill-intensive production.

### Findings and Insights
- Traces how restructuring occurs as resource constraints in the labor market bind in a rapidly growing small open economy.
- Identifies the role of learning-driven labor productivity gains in facilitating shifts toward high-technology, knowledge-and-skill-intensive activities.
- Analyzes how policies and exogenous shocks influence both the direction and the pace of the economy’s structural transformation.

### Policy Implications and Investigations
- Evaluates the effects of various policies on restructuring (policy types not enumerated on the page).
- Explores how wage adjustments and wage-correction policy interact with productivity increases and shifts in production.
- Considers implications for employment, labor costs, and the rate of return as the economy transitions sectors.

### Subjects and Keywords
- Subject: Employment, Labor, Labor costs, Labor force, Wage adjustments, Wages
- Keywords: Employment, Global, high-technology good, Labor costs, Labor force, learning by doing, open economy, physical capital, productivity increase, rate of return, shifts production, Wage adjustments, wage-correction policy, Wages, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/wages-profitability-and-growth-in-a-small-open-economy-3053_