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Unemployment dynamics with international capital mobility

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  • Costas Azariadis
  • Christopher Pissarides

Abstract

We study the response of domestic unemployment rates to shocks in total factor productivity for economies with high capital mobility and low labour mobility. We show that rapid capital movements across national borders, like those experienced by developed nations in the last twenty years, substantially amplify the impact on the domestic unemployment rate of domestic fluctuations in total factor productivity relative to what would have happened in a closed economy, shorten the duration of the responses and raise the variability of employment. Capital flows increase the riskiness of labour income and reduce the riskiness of capital income.

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File URL: http://eprints.lse.ac.uk/2476/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 2476.

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Date of creation: Jan 2007
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Publication status: Published in European Economic Review, January, 2007, 51(1), pp. 27-48. ISSN: 0014-2921
Handle: RePEc:ehl:lserod:2476

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Keywords: unemployment; foreign direct investment; fluctuations; capital mobility;

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References

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  1. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, vol. 59(5), pages 1425-54, September.
  2. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
  3. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  4. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  5. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
  6. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  7. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  8. Giovanna Vallanti, 2005. "Capital mobility and unemployment dynamics: evidence from a panel of OECD countries," LSE Research Online Documents on Economics 19897, London School of Economics and Political Science, LSE Library.
  9. Dale T. Mortensen & Randall Wright, 2002. "Competitive Pricing and Efficiency in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 1-20, February.
  10. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  11. C Bean & Christopher A. Pissarides, 1992. "Unemployment, Consumption and Growth," CEP Discussion Papers dp0100, Centre for Economic Performance, LSE.
  12. Georges de Ménil, 1999. "Real capital market integration in the EU: How far has it gone? What will the effect of the euro be?," Economic Policy, CEPR & CES & MSH, vol. 14(28), pages 165-201, 04.
  13. Maurice Obstfeld, 1986. "Capital Mobility in the World Economy: Theory and Measurement," NBER Working Papers 1692, National Bureau of Economic Research, Inc.
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Cited by:
  1. Sala, Hector & Silva, José I. & Toledo, Manuel E., 2008. "Flexibility at the Margin and Labor Market Volatility in OECD Countries," IZA Discussion Papers 3293, Institute for the Study of Labor (IZA).
  2. Giovanna Vallanti, 2005. "Capital Mobility and Unemployment Dynamics: Evidence from a Panel of OECD Countries," CEP Discussion Papers dp0684, Centre for Economic Performance, LSE.
  3. Marta Aloi & Teresa Lloyd-Braga, 2010. "National labor markets, international factor mobility and macroeconomic instability," Economic Theory, Springer, vol. 43(3), pages 431-456, June.
  4. M. Alper Çenesiz & Christian Pierdzioch, 2010. "Capital mobility and labor market volatility," International Economics and Economic Policy, Springer, vol. 7(4), pages 391-409, December.
  5. Frédéric Gavrel, 2013. "Capital mobility, search unemployment and labor market policies: The case of minimum wages," Working Papers halshs-00856270, HAL.
  6. Hiraguchi, Ryoji, 2011. "A note on the competitive search model of Azariadis and Pissarides," European Economic Review, Elsevier, vol. 55(2), pages 304-306, February.
  7. Schubert, Stefan F., 2011. "The effects of total factor productivity and export shocks on a small open economy with unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1514-1530, September.

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