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

Hiroki Murakami and Hiroaki Sasaki ()

Economic Modelling, 2020, vol. 93, issue C, 299-309

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.

Keywords: Economic development; Economic stability; Public capital; Wage flexibility (search for similar items in EconPapers)
JEL-codes: H54 O11 O41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.econmod.2020.08.005

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