Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale
AbstractWhat are the dynamic consequences of comprehensive integration shocks? The answer to this question appears all but trivial. We set up a dynamic macroeconomic model of a small open economy where both capital and labor are mobile and there are increasing returns to scale at the aggregate level. The model features multiple equilibria as well as (local and global) indeterminacy. Hence, expectations matter for resulting equilibrium dynamics. Despite its simplicity, the model creates a rich set of plausible implications. Our analysis contributes to a better understanding of the interaction between expectations and fundamentals in models with indeterminacy. The model is applied to replicate two striking empirical characteristics of macroeconomic development in East Germany since 1991. --
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Bibliographic InfoPaper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62062.
Date of creation: 2012
Date of revision:
Other versions of this item:
- Andreas Schäfer & Thomas Steger, 2011. "Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale," CESifo Working Paper Series 3676, CESifo Group Munich.
- Schäfer, Andreas & Steger, Thomas, 2012. "Journey into the unknown? Economic consequences of factor market integration under increasing returns to scale," Working Papers 107, University of Leipzig, Faculty of Economics and Management Science.
- D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
- F20 - International Economics - - International Factor Movements and International Business - - - General
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
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- NEP-ALL-2013-01-12 (All new papers)
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