Endogenous Growth and Equilibrium Unemployment in a North-South Model of the World Economy

• Main Author: HOON, Hian Teck
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Economic growth; growth models; employment; development; Growth and Development; Labor Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/496; https://ink.library.smu.edu.sg/context/soe_research/article/1495/viewcontent/EndogenousGrowth_2002_RDE.pdf
• Institution: Singapore Management University

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.