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International Capital Mobility and Unemployment Dynamics: Empirical Evidence from OECD Countries

Listed author(s):
  • Giovanna Vallanti

    ()

    (LUISS "Guido Carli")

We use a panel of 20 OECD countries over a 30-year period to investigate empirically the implications of international capital mobility for aggregate unemployment dynamics. To this aim, we employ standard regression analysis and dynamic simulations to illustrate the channels through which international capital mobility impacts unemployment adjustments to productivity shocks and in turn quantify its effect on unemployment volatility. We find that capital mobility plays a significant role in generating unemployment responses to idiosyncratic productivity shocks which are wider but less persistent. Moreover, the evidence we provide suggests that the responsive- ness effect dominates the persistence effect, implying a net increase in unemployment volatility due to higher international capital mobility. Finally, if we simulate the effects of an increase of international capital mobility of the same order of magnitude of that occurred in the OECD countries after the mid-80s, we obtain a rise in the volatility of unemployment rate which is comparable to that observed in those countries in the same years.

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Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers LuissLab with number 15123.

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Date of creation: 2015
Handle: RePEc:lui:lleewp:15123
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