Endogenous Growth and Equilibrium Unemployment in a North-South Model

Author: Hoon, Hian Teck1

Source: Review of Development Economics, Volume 6, Number 1, February 2002 , pp. 26-38(13)

Publisher: Blackwell Publishing

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Abstract:

A North-South model is developed which incorporates an endogenous rate of equilibrium unemployment in the North in the context of long-run growth. It is shown how increases in the size of public debt and unemployment compensation financed by payroll taxation, all measured relative to productivity, raise the Northern natural rate of unemployment and, consequently, reduce the global rate of long-run growth. The effect of the shocks is also to drive down the rate of employment expansion in the South. A set of the fundamental determinants of the world terms of trade is obtained, which includes policy parameters.

Document Type: Original article

DOI: 10.1111/1467-9361.00137

Affiliations: 1: Singapore Management University, Republic of Singapore

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