Hostname: page-component-cd9895bd7-dk4vv Total loading time: 0 Render date: 2024-12-23T06:58:15.178Z Has data issue: false hasContentIssue false
  • English
  • Français

EQUILIBRIUM INDETERMINACY IN ONE-SECTOR SMALL OPEN ECONOMIES: THE ROLE OF INTERNATIONAL LABOR MIGRATION

Published online by Cambridge University Press:  20 July 2017

Carmelo P. Parello
Carmelo P. Parello*
Affiliation:
Sapienza University of Rome
*
Address correspondence to: Carmelo P. Parello, Department of Economics and Law, Sapienza University of Rome, Via del Castro Laurenziano 9, I-00161, Rome, Italy; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper presents a Ramsey-like dynamic small open economy with endogenous labor migration. In the model, the domestic economy is free to borrow or lend as much as it wants at the given world interest rate, and individuals are supposed to be free to move from a country to another in response to the emergence of a wage differential between countries. Our analysis can be ideally split in two parts. Initially, we propose a baseline model in which only natives are allowed to save and invest in capital assets and traded bonds, whereas immigrants are credit constrained. Next, we provide an extension in which all individuals, including immigrants, have full access to international financial markets. We find that the steady state is always local indeterminate, and that the adjustment dynamics of the competitive equilibrium is dependent upon the initial level of the immigration ratio.

Keywords

IndeterminacyInternational MigrationSmall Open Economy
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 4 , June 2019 , pp. 1528 - 1562
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I would like to thank two anonymous referees for very helpful comments and suggestions. This paper also benefited from presentations at the 4th Joint IOS/APB Summer Academy on Central and Eastern Europe, the 53rd SIE Annual Scientific Meeting, University of Bologna, and 18th INFER Annual Conference for useful comments and suggestions. Financial support from Sapienza University of Rome, “Progetto di ricerca di Università – prot. C26A135SSH,” is gratefully acknowledged.

References

REFERENCES

Bambi, Mauro and Venditti, Alain (2016) Time-Varying Consumption Tax, Productive Government Spending, and Aggregate Instability. Discussion papers 16/01, Department of Economics, University of York.Google Scholar
Ben Gad, Michael (2003) Importing Human Capital: Immigration in the Endogenous Growth Model. Mimeo, University of Haifa.Google Scholar
Ben Gad, Michael (2004) The economic effects of immigration: A dynamic analysis. Journal of Economic Dynamics and Control 28, 1825–1845.Google Scholar
Ben Gad, Michael (2008) Capital-skill complementarity and the immigration surplus. Review of Economic Dynamics 11, 335–365.Google Scholar
Benhabib, Jess and Jovanovic, Boyan (2012) Optimal migration: A world perspective. International Economic Review 53, 321–348.Google Scholar
Benhabib, Jess and Nishimura, Kazuo (1998) Indeterminacy and sunspots with constant returns. Journal of Economic Theory 81, 58–96.Google Scholar
Benhabib, Jess and Perli, Roberto (1994) Uniqueness and indeterminacy: On the dynamics of endogenous growth. Journal of Economic Theory 63, 113–142.Google Scholar
Benhabib, Jess and Farmer, Roger E. (1994) Intermediacy and growth. Journal of Economic Theory 63, 19–41.Google Scholar
Benhabib, Jess and Farmer, Roger E. (1996) Intermediacy and sector specific externalities. Journal of Monetary Economics 37, 397–419.Google Scholar
Bian, Yong and Meng, Qinglai (2004) Preferences, endogenous discount rate, and indeterminacy in a small open economy model. Economics Letters 84, 315–322.Google Scholar
Boldrin, Michele and Rustichini, Aldo (1994) Indeterminacy of equilibria in models with infinitely-lived agents and external effects. Econometrica 62, 323–342.Google Scholar
Borjas, George (1995) The economic benefits from immigration. Journal of Economic Perspectives 9, 3–22.Google Scholar
Borjas, George (1999) The economic analysis of immigration. In Ashenfelter, Orley and David Card (eds.), Handbook of Labor Economics, vol. 3A, pp. 1697–1760. Amsterdam: Elsevier Science.Google Scholar
Borjas, George (2001) Does immigration grease the wheels of labor market? Brookings Papers on Economic Activity 1, 69–133.Google Scholar
Brainard, William C. and Tobin, James (1968) Pitfalls in financial model building. American Economic Review 58, 99–122.Google Scholar
Card, David E. (2007) How Immigration Affects U.S. Cities. CReAM discussion paper series 07-11, University College London.Google Scholar
Cooley, Thomas F. (1995) Frontiers of Business Cycle Research. Princeton: Princeton University Press.Google Scholar
D'Amuri, Francesco, Ottaviano, Gianmarco I. P., and Peri, Giovanni (2010). The labor market impact of immigration in Western Germany in the 1990s. European Economic Review 54, 550–570.Google Scholar
Diamond, Peter A. (1965) National debt in a neoclassical growth model. American Economic Review 55, 1126–1150.Google Scholar
Drinkwater, Stephen, Levine, Paul, Lotti, Emanuela, and Pearlman, Joseph (2007) The immigration surplus revisited in a general equilibrium model with endogenous growth. Journal of Regional Science 47, 569–601.Google Scholar
Drugeon, Jean-Pierre (1998) A model with endogenously determined cycles, discounting and growth. Economic Theory 12, 349–369.Google Scholar
Dustmann, Christian, Frattini, Tommaso, and Preston, Ian P. (2008) The effect of immigration along the distribution of wages. Review of Economic Studies 80, 145–173.Google Scholar
Eicher, Theo S. and Turnovsky, Stephen J. (1999) International capital markets and non-scale growth. Review of International Economics 7, 171–188.Google Scholar
Faini, Riccardo (1996) Increasing returns, migration and convergence. Journal of Development Economics 49, 121–136.Google Scholar
Farmer, Roger E. (2013) Animal spirits, financial crises and persistent unemployment. Economic Journal 123, 317–340.Google Scholar
Galor, Oded (1986) Time preference and international labor migration. Journal of Economic Theory 38, 1–20.Google Scholar
Galor, Oded and Stark, Oded (1990) Migrants' savings, the probability of return migration and migrants' performance. International Economic Review 31, 463–467.Google Scholar
Garnier, Jean-Philippe, Nishimura, Kazuo, and Venditti, Alain (2013) Local indeterminacy in continuous-time models: The role of returns to scale. Macroeconomic Dynamics 17, 326–355.Google Scholar
Gollin, Douglas (2002) Getting income shares right. Journal of Political Economy 110, 458–474.Google Scholar
Harris, John R. and Todaro, Michael P. (1970) Migration, unemployment and development: A two-sector analysis. American Economic Review 60, 126–142.Google Scholar
Hazari, Bharat R. and Sgro, Pasquale M. (2003) The simple analytics of optimal growth with illegal migrants. Journal of Economic Dynamics and Control 28, 141–151.Google Scholar
Khraiche, Maroula (2015) A macroeconomic analysis of guest workers permits. Macroeconomic Dynamics 19, 189–220.Google Scholar
Klein, Paul and Ventura, Gustavo J. (2007) TFP differences and the aggregate effects of labor mobility in the long run. B. E. Journal of Macroeconomics 7, 1–38.Google Scholar
Klein, Paul and Ventura, Gustavo J. (2009) Productivity differences and the dynamic effects of labor movements. Journal of Monetary Economics 56 (8), 1059–1073.Google Scholar
Lahiri, Amartya (2001) Growth and equilibrium indeterminacy: The role of capital mobility. Economic Theory 17, 197–208.Google Scholar
Larramona, Gemma and Sanso, Marcos (2006) Migration dynamics, growth and convergence. Journal of Economic Dynamics and Control 30 (11), 2261–2279.Google Scholar
Levine, Paul, Lotti, Emanuela, Pearlman, Joseph, and Pierse, Richard (2010) Growth and welfare effects of world migration. Scottish Journal of Political Economy 57, 615–643.Google Scholar
Liu, Xiangbo (2010) On the macroeconomic and welfare effects of illegal immigration. Journal of Economic Dynamics and Control 34 (12), 2547–2567.Google Scholar
Lundborg, Per and Segerstrom, Paul S. (2000) International migration and growth in developed countries: A theoretical analysis. Economica 67, 579–604.Google Scholar
Lundborg, Per and Segerstrom, Paul S. (2002) The growth and welfare effects of international mass migration. Journal of International Economics 56, 177–204.Google Scholar
Manacorda, Marco, Manning, Alan, and Wadsworth, Jonathan (2012) The impact of immigration on the structure of wages: Theory and evidence from Britain. Journal of European Economic Association 10, 152–197.Google Scholar
Mandelman, Federico S. and Zlate, Andrei (2012) Immigration, remittances and business cycles. Journal of Monetary Economics 59, 196–213.Google Scholar
Meng, Qinglai (2006) Impatience and equilibrium indeterminacy. Journal of Economic Dynamics and Control 30, 2671–2692Google Scholar
Meng, Qinglai and Velasco, Andrés (2003) Indeterminacy in a small open economy with endogenous labor supply. Economic Theory 22, 661–669.Google Scholar
Meng, Qinglai and Velasco, Andrés (2004) Market imperfections and the stability of open economies. Journal of International Economics 64, 503–519.Google Scholar
Miyagiwa, Kaz (1991) Scale economies in education and the brain drain problem. International Economic Review 32, 743–759.Google Scholar
Moy, Hon Man and Yip, Chong K. (2006) The simple analytics of optimal growth with illegal migrants: A clarification. Journal of Economic Dynamics and Control 30 (12), 2469–2475.Google Scholar
Nishimura, Kazuo and Shimomura, Koji (2002) Indeterminacy in a dynamic small open economy. Journal of Economic Dynamics and Control 27, 271–281.Google Scholar
Nishimura, Kazuo and Venditti, Alain (2004) Indeterminacy and the role of factor substitutability. Macroeconomic Dynamics 8, 436–465.Google Scholar
Ortega, Javier (2000) Pareto-improving immigration in an economy with equilibrium unemployment. Economic Journal 110, 92–112.Google Scholar
Ortigueira, Salvador and Santos, Manuel S. (1997) On the speed of convergence in endogenous growth models. American Economic Review 87, 383–99.Google Scholar
Ottaviano, Gianmarco I. P. and Peri, Giovanni (2012) Rethinking the effect of immigration on wages. Journal of the European Economic Association 10, 152–197.Google Scholar
Palivos, Theodore (2009) Welfare effects of illegal immigration. Journal of Population Economics 22, 131–144.Google Scholar
Palivos, Theodore and Yip, Chong K. (2010) Illegal immigration in a heterogeneous labor market. Journal of Economics 101, 21–47Google Scholar
Photphisutthiphong, Nopphawan and Weder, Mark (2012) Capital–labor substitution, sector-specific externalities, and indeterminacy. Macroeconomic Dynamics 16 (Supplement 3), 411–421.Google Scholar
Raphael, Steven and Smolensky, Eugene (2009) Immigration and poverty in the United States. American Economic Review 99, 41–44.Google Scholar
Reichlin, Pietro and Rustichini, Aldo (1993) Diverging Patterns in a Two Country Model with Endogenous Labor Migration. CORE discussion paper 9332, Universitè Catholique de Louvain.Google Scholar
Reichlin, Pietro and Rustichini, Aldo (1998) Diverging patterns with endogenous labor migration. Journal of Economic Dynamics and Control 22, 703–728.Google Scholar
Turnovsky, Stephen J. (2005) Capital Accumulation and Economic Growth in a Small Open Economy. Cambridge: Cambridge University Press.Google Scholar
Weber, Mark (2001). Indeterminacy in the small open economy Ramsey growth model. Journal of Economic Theory 98, 339–356.Google Scholar
Wong, Tsz-Nga and Yip, Chong K. (2010) Indeterminacy and the elasticity of substitution in one sector models. Journal of Economic Dynamics and Control 34, 623–635.Google Scholar
World Bank (2015) Migration and Remittances: Recent Developments and Outlook. Migration and development brief 24, The World Bank Press.Google Scholar
Xie, Danyang (1994) Divergence in economic performance: Transitional dynamics with multiple equilibria. Journal of Economic Theory 63, 97–112.Google Scholar