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Economic development with public capital accumulation: The crucial role of wage flexibility on business cycles

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  • Murakami, Hiroki
  • Sasaki, Hiroaki

Abstract

The purpose of this paper is to study the effect of wage flexibility on economic development with public capital accumulation. For this purpose, we examine the stabilizing power of wage flexibility in a model of a small open economy with public capital. We then show that wage flexibility is conducive to economic stability. In particular, we find that there exists a threshold value in the degree of wage flexibility such that the stationary point is stable (resp. unstable) if the degree is greater (resp. less) than the threshold value, and that cyclical fluctuations arise when the degree is sufficiently close to the threshold value.

Suggested Citation

  • Murakami, Hiroki & Sasaki, Hiroaki, 2020. "Economic development with public capital accumulation: The crucial role of wage flexibility on business cycles," Economic Modelling, Elsevier, vol. 93(C), pages 299-309.
    • Handle: RePEc:eee:ecmode:v:93:y:2020:i:c:p:299-309
    DOI: 10.1016/j.econmod.2020.08.005
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    Cited by:

    1. Hiroki Murakami, 2022. "Keynesian and classical theories: static and dynamic perspectives," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 343-367, April.

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    More about this item

    Keywords

    Economic development; Economic stability; Public capital; Wage flexibility;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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