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Unemployment dynamics with international capital mobility

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  • Azariadis, Costas
  • Pissarides, Christopher

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.

Suggested Citation

  • Azariadis, Costas & Pissarides, Christopher, 2007. "Unemployment dynamics with international capital mobility," LSE Research Online Documents on Economics 2476, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:2476
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Henrik Egbert & Nadeem Naqvi, 2011. "Market-dependent Production Set," MAGKS Papers on Economics 201145, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    3. Hector Sala & José I. Silva & Manuel Toledo, 2012. "Flexibility at the Margin and Labor Market Volatility in OECD Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 991-1017, September.
    4. Marta Aloi & Teresa Lloyd-Braga, 2010. "National labor markets, international factor mobility and macroeconomic instability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(3), pages 431-456, June.
    5. Giovanna Vallanti, 2018. "International capital mobility and unemployment dynamics: Empirical evidence from OECD countries," The World Economy, Wiley Blackwell, vol. 41(11), pages 3130-3171, November.
    6. 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.
    7. Frederic Gavrel, 2013. "Capital mobility, search unemployment and labor market policies: The case of minimum wages," TEPP Working Paper 2013-02, TEPP.
    8. Nicos Christodoulakis & Christos Axioglou, 2017. "Underinvestment and Unemployment: The Double Hazard in the Euro Area," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 63(1), pages 49-80.
    9. Vicente Rios, 2017. "What drives unemployment disparities in European regions? A dynamic spatial panel approach," Regional Studies, Taylor & Francis Journals, vol. 51(11), pages 1599-1611, November.
    10. Vallanti, Giovanna, 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.
    11. Ioanna C. Bardakas, 2016. "Structural and cyclical factors of Greece’s current account balances: a note," Working Papers 206, Bank of Greece.
    12. 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.

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    More about this item

    Keywords

    unemployment; foreign direct investment; fluctuations; capital mobility;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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