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Management article
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Reference no. 94406
Authors: Paul Krugman
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1994

Abstract

In this article, Stanford economist Paul Krugman argues that fears about the impact of Third World competition are questionable in theory and flatly rejected by the data. After examining the consequences of isolated productivity improvements in three increasingly realistic economic models, Krugman concludes that an increase in Third World labor productivity means an increase in world output. And an increase in world output shows up in higher wages for Third World workers, not in decreased living standards for the First World. Yet if the West responds to the widespread fears about Third World economic success by erecting import barriers, the effects could be disastrous--dashing any hope of a decent living standard for hundreds of millions of people throughout the developing world.

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Abstract

In this article, Stanford economist Paul Krugman argues that fears about the impact of Third World competition are questionable in theory and flatly rejected by the data. After examining the consequences of isolated productivity improvements in three increasingly realistic economic models, Krugman concludes that an increase in Third World labor productivity means an increase in world output. And an increase in world output shows up in higher wages for Third World workers, not in decreased living standards for the First World. Yet if the West responds to the widespread fears about Third World economic success by erecting import barriers, the effects could be disastrous--dashing any hope of a decent living standard for hundreds of millions of people throughout the developing world.

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