IDEAS home Printed from https://ideas.repec.org/p/not/notcfc/09-10.html
   My bibliography  Save this paper

National Labor Markets, International Factor Mobility and Macroeconomic Instability

Author

Listed:
  • Marta Aloi
  • Teresa Lloyd-Braga

Abstract

We consider a standard two—country environment, where one of the countries has rigid wages and unemployment, and analyze how factor markets’ integration affects the economy with respect to expectationsdriven fluctuations. We demonstrate that by allowing free capital mobility, indeterminacy is exported to the world economy. If further liberalization is permitted, by allowing free movements of labor, the scope for indeterminacy is reduced and open labor markets may produce a stabilizing effect on the global macroeconomy. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries.

Suggested Citation

  • Marta Aloi & Teresa Lloyd-Braga, 2009. "National Labor Markets, International Factor Mobility and Macroeconomic Instability," Discussion Papers 09/10, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:09/10
    as

    Download full text from publisher

    File URL: https://www.nottingham.ac.uk/cfcm/documents/papers/09-10.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
    2. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 459-472, November.
    3. Lloyd-Braga, Teresa & Nourry, Carine & Venditti, Alain, 2007. "Indeterminacy in dynamic models: When Diamond meets Ramsey," Journal of Economic Theory, Elsevier, vol. 134(1), pages 513-536, May.
    4. André Sapir & Marco Buti, 2002. "EMU and economic policy in Europe: the challenge of the early years," ULB Institutional Repository 2013/8072, ULB -- Universite Libre de Bruxelles.
    5. Weder, Mark, 2001. "Indeterminacy in a Small Open Economy Ramsey Growth Model," Journal of Economic Theory, Elsevier, vol. 98(2), pages 339-356, June.
    6. Rui Coimbra & Teresa Lloyd-Braga & Leonor Modesto, 2005. "Endogenous fluctuations in unionized economies with productive externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(3), pages 629-649, October.
    7. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
    8. Mr. Ayhan Kose & Mr. Kenneth Rogoff & Mr. Eswar S Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries: Some Empirical Evidence," IMF Occasional Papers 2003/007, International Monetary Fund.
    9. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, vol. 5(1), pages 1-24, March.
    10. Roger E. A. Farmer, 1999. "Macroeconomics of Self-fulfilling Prophecies, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062038, April.
    11. Barinci, Jean-Paul & Cheron, Arnaud, 2001. "Sunspots and the Business Cycle in a Finance Constrained Economy," Journal of Economic Theory, Elsevier, vol. 97(1), pages 30-49, March.
    12. Qinglai Meng & Andrés Velasco, 2003. "Indeterminacy in a small open economy with endogenous labor supply," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(3), pages 661-669, October.
    13. Graziella Bertocchi, 2003. "Labor Market Institutions, International Capital Mobility, and the Persistence of Underdevelopment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 637-650, July.
    14. Obstfeld,Maurice & Taylor,Alan M., 2005. "Global Capital Markets," Cambridge Books, Cambridge University Press, number 9780521671798, September.
    15. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 249-283, April.
    16. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
    17. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
    18. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    19. Kenneth F. Scheve & Matthew J. Slaughter, 2001. "Globalization and the Perceptions of American Workers," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 109, April.
    20. Burnside, Craig, 1996. "Production function regressions, returns to scale, and externalities," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 177-201, April.
    21. Sakuragawa, Masaya & Hamada, Koichi, 2001. "Capital Flight, North-South Lending and Stages of Economic Development," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 1-24, February.
    22. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    23. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    24. Azariadis, Costas & Pissarides, Christopher A., 2007. "Unemployment dynamics with international capital mobility," European Economic Review, Elsevier, vol. 51(1), pages 27-48, January.
    25. Marco Buti & André Sapir (ed.), 2002. "EMU and Economic Policy in Europe," Books, Edward Elgar Publishing, number 2871.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jean-Michel Grandmont, 2016. "Endogenous Procyclicality of Labor Productivity, Employment, Real Wages and Effort in Conditionally Heteroskedastic Sunspots Unemployment Business Cycles with Negishi-Solow Efficiency Wages," Discussion Paper Series DP2016-14, Research Institute for Economics & Business Administration, Kobe University.
    2. Kunieda, Takuma & Shibata, Akihisa, 2012. "Financial Globalization and Animal Spirits," MPRA Paper 36123, University Library of Munich, Germany.
    3. Jean‐Michel Grandmont, 2008. "Negishi–Solow efficiency wages, unemployment insurance and dynamic deterministic indeterminacy," International Journal of Economic Theory, The International Society for Economic Theory, vol. 4(2), pages 247-272, June.
    4. Wu Joseph S. K. & Ho Chi Pui, 2017. "The Shapiro-Stiglitz Model with Non-constant Marginal Utility," Open Economics, De Gruyter, vol. 1(1), pages 36-48, August.
    5. Kevin X. D. Huang & Qinglai Meng & Jianpo Xue, 2019. "Money growth targeting and indeterminacy in small open economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(3), pages 499-535, October.
    6. Jean-Michel Grandmont, "undated". "Countercyclical Endogenous Uncertainty Shocks, Efficiency Wages and Procyclical Precautionary Labor Productivity," Working Papers 2017:25, Department of Economics, University of Venice "Ca' Foscari".
    7. Jean-Michel Grandmont, 2016. "Endogenous Procyclicality of Labor Productivity, Employment, Real Wages and Effort in Conditionally Heteroskedastic Sunspots Unemployment Business Cycles with Negishi-Solow Efficiency Wages," Working Papers 2016-06, Center for Research in Economics and Statistics.
    8. Antoine Le Riche, 2017. "Macroeconomic volatility and trade in OLG economies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 13(4), pages 401-425, December.
    9. Patrick-Antoine Pintus, 2007. "Procyclical International Capital Flows, Debt Overhang And Volatility," Working Papers halshs-00353596, HAL.
    10. Le Riche, Antoine & Lloyd-Braga, Teresa & Modesto, Leonor, 2022. "Intra-industry trade, involuntary unemployment and macroeconomic stability," Journal of Mathematical Economics, Elsevier, vol. 99(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amable, Bruno & Gatti, Donatella, 2004. "The Political Economy of Job Protection and Income Redistribution," IZA Discussion Papers 1404, Institute of Labor Economics (IZA).
    2. Juin‐Jen Chang & Jang‐Ting Guo & Wei‐Neng Wang, 2021. "On Endogenous Business Cycles Under Increasing Returns To Variety And Sector‐Specific Externality," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 532-548, January.
    3. Gokan, Yoichi, 2008. "Alternative government financing and aggregate fluctuations driven by self-fulfilling expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1650-1679, May.
    4. Luís Francisco Aguiar-Conraria & Yi Wen, 2004. "Foreign Trade and Equilibrium Indeterminacy," NIPE Working Papers 5/2004, NIPE - Universidade do Minho.
    5. Stephanie Schmitt-Grohe, 2000. "Endogenous Business Cycles and the Dynamics of Output, Hours, and Consumption," American Economic Review, American Economic Association, vol. 90(5), pages 1136-1159, December.
    6. Le Riche, Antoine & Lloyd-Braga, Teresa & Modesto, Leonor, 2022. "Intra-industry trade, involuntary unemployment and macroeconomic stability," Journal of Mathematical Economics, Elsevier, vol. 99(C).
    7. Hu, Yunfang & Mino, Kazuo, 2013. "Trade structure and belief-driven fluctuations in a global economy," Journal of International Economics, Elsevier, vol. 90(2), pages 414-424.
    8. Wilson, Matthew S., 2020. "A real business cycle model with money as a sunspot variable," Journal of Economics and Business, Elsevier, vol. 109(C).
    9. Zhang, Yan, 2020. "Stabilization policy and indeterminacy in a small open economy," Economic Modelling, Elsevier, vol. 90(C), pages 159-167.
    10. Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
    11. Guo, Jang-Ting & Lansing, Kevin J., 1998. "Indeterminacy and Stabilization Policy," Journal of Economic Theory, Elsevier, vol. 82(2), pages 481-490, October.
    12. Bill Dupor, 2005. "Keynesian Conundrum: Multiplicity and Time Consistent Stabilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 154-177, January.
    13. Simonetta Longhi & Peter Nijkamp & Jacques Poot, 2006. "Spatial Heterogeneity And The Wage Curve Revisited," Journal of Regional Science, Wiley Blackwell, vol. 46(4), pages 707-731, October.
    14. Maxime Menuet & Alexandru Minea & Patrick Villieu, 2019. "The Peril of Fiscal Rules," Post-Print hal-02314996, HAL.
    15. Chin, Chi-Ting & Guo, Jang-Ting & Lai, Ching-Chong, 2009. "Macroeconomic (in)stability under real interest rate targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 33(9), pages 1631-1638, September.
    16. Sergey Slobodyan, 2004. "One Sector Models, Indeterminacy, and Productive Public Spending," Computing in Economics and Finance 2004 314, Society for Computational Economics.
    17. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital Flows and Asset Prices," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 175-216, National Bureau of Economic Research, Inc.
    18. Herrendorf, Berthold & Valentinyi, Akos, 2006. "On the stability of the two-sector neoclassical growth model with externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1339-1361, August.
    19. Martin Larch & João Nogueira Martins, 2007. "Fiscal indicators - Proceedings of the the Directorate-General for Economic and Financial Affairs Workshop held on 22 September 2006 in Brussels," European Economy - Economic Papers 2008 - 2015 297, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    20. Larch, Martin & Van den Noord, Paul & Jonung, Lars, 2010. "The stability and growth pact: lessons from the great recession," MPRA Paper 27900, University Library of Munich, Germany.

    More about this item

    Keywords

    Indeterminacy; Factor Movements; Globalization; Efficiency Wages;
    All these keywords.

    JEL classification:

    • 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
    • F15 - International Economics - - Trade - - - Economic Integration
    • F20 - International Economics - - International Factor Movements and International Business - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:not:notcfc:09/10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hilary Hughes (email available below). General contact details of provider: https://edirc.repec.org/data/cfnotuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.