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Why Don’t Labor and Capital Flow Between Young and Old Countries?

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Author Info
Lena Calahorrano () (RWTH Aachen University, Faculty of Business and Economics, Templergraben 64, 52062 Aachen, Germany)
Philipp an de Meulen () (RWTH Aachen University, Faculty of Business and Economics, Templergraben 64, 52062 Aachen, Germany)
Abstract

In this paper we investigate the twofold effect of demographics on international factor flows in a model with endogenous policy constraints on both foreign direct investment and migration. Factor price differences between industrialized and developing countries create economic incentives for migration to developed countries and for capital flows to less developed countries. However, political barriers to immigration in developed countries and expropriation risks in developing countries impede labor and capital flows. Using a political economy approach that takes into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy restrictions interact. We find that, in the presence of mobility constraints, larger demographic differences between countries need not result in an increase of factor flows.

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File URL: https://www.uni-marburg.de/fb02/makro/forschung/magkspapers/42-2009_calahorrano.pdf
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File Function: First version, 2009
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Publisher Info
Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200942.

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Length: 27 pages
Date of creation: 2009
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200942

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Related research
Keywords: Demographic Change; Political Economy; Migration; Foreign Direct Investment;

Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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This page was last updated on 2009-11-25.

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