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Endogenous-growth theory suggests that technological change tends to reinforce the position of the leading nations. Yet sometimes this leadership role shifts. The authors suggest a mechanism that explains this pattern of 'leapfrogging' as a response to occasional major changes in technology. When such a change occurs, the new technology does not initially seem to be an improvement for leading nations, given their extensive experience with older technologies. Lagging nations have less experience; the new technique allows them to use their lower wages to enter the market. If the new technique proves more productive than the old, leapfrogging of leadership occurs. Copyright 1993 by American Economic Association.

Two leading economists, MIT's Paul Krugman and the Hoover Institution's David R. Henderson, debate whether jobs lost to technology are met by a net increase in jobs elsewhere in a more productive economy. Krugman, a noted liberal, says maybe in the long run, but for now ordinary workers see their wages falling. Henderson, a conservative, says that the problem is not the elimination of jobs through technology but a workforce with inadequate skills.

Before the early 1970s generous welfare states seemed to be consistent with high employment. Since then, there has been growing concern over disincentive effects of social insurance. This paper suggests that the problem may have arisen in part because European nations were in effect trying to fight market tendencies towards increased inequality. In the United States, with its much more limited welfare state, there has been a striking rise in inequality; a stylized model suggests that the response of redistributive states to these same market forces could have led to a considerable fall in employment.

This paper develops a model of international competition in an oligopoly characterized by strong learning effects. The model is quantified by calibrating its parameters to reproduce the U.S.Japanese rivalry in 16K RAMS from 1978-1983. We then ask the following question: how much did the apparent closure of the Japanese market to imports affect Japan's export performance? A simulation analysis suggests that a protected home market was a crucial advantage to Japanese firms, which would otherwise have been uncompetitive both at home and abroad. We find, however, that Japan's home market protection nonetheless produced more costs than benefits for Japan.