National Labor Markets, International Factor Mobility and Macroeconomic Instability

Marta Aloi and Teresa Lloyd-Braga

Discussion Papers from University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM)

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.

Keywords: Indeterminacy; Factor Movements; Globalization; Efficiency Wages (search for similar items in EconPapers)
Date: 2009-10
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: National labor markets, international factor mobility and macroeconomic instability (2010)
Working Paper: National Labour Markets, International Factor Mobility and Macroeconomic Instability (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcfc:09/10

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