In the first post in this three post series, I gleaned a theory of the economic frontier from some of BK’s comments and offered a few of my own responses. In this post, I’ll expound my own theory.
Two general points. First, how the economic frontier advances is both enormously important for human welfare and quite mysterious. It is important because long-run economic growth will determine how well we can mitigate world poverty and deliver ever-improving lives to future generations. A tiny increase in the rate of advance of the economic frontier, say from 3% to 5%, would make our descendants a century hence almost an order of magnitude wealthier. Second, open borders would likely affect the rate of advance of the economic frontier. Before reading BK’s comments, I had pretty much taken it for granted that open borders would boost growth, at least in the short run, as people move from low-productivity countries to high-productivity countries. Based on Clemens (2011) and Kennan (2012), the modal result of formal studies so far seems to be that open borders would double world GDP, and the assumptions on which this result is based are actually conservative in some ways, e.g., they don’t assume that everyone would migrate to where their marginal product is highest. Negative institutional/productivity side-effects of open borders on frontier countries would have to be very large to offset this, but such effects are not beyond the range of plausibility.
My theory, which I’ll call the “Endogenous Division of Labor” or “EDOL” model, was the topic of the second chapter of my dissertation, Complexity, Competition and Growth (but don’t pay $103, it’s available here for free). More recently, and I think more accessibly, I published a new version as an SSRN working paper here, under the title “Development as Division of Labor: Adam Smith Meets Agent-Based Simulation.” All the data is drawn from a simulation I wrote, which is introduced in this video, and I’ll be happy to send the simulation (as a runnable JAR file) if you’re interested in exploring its properties on your own. It’s not that user-friendly, but I’ll even be glad to give you a tutorial via Skype. I’ll also be glad to present it at academic conferences or seminars or whatever. I think it would lend itself to public presentation quite well, though I haven’t got the chance to transfer. I’m trying to publish it. So far, the Journal of Political Economy rejected it, with some harsh but useful feedback. I plan to submit a completely rewritten version to the Journal of Economic Growth. Any feedback is welcome.