Journey into the unknown? Economic consequences of factor market integration under increasing returns to scale

Arbeitspapier

What are the dynamic consequences of comprehensive integration shocks? The answer to this question appears all but trivial. We set up a dynamic macroeconomic model of a small open economy where both capital and labor are mobile and there are increasing returns to scale at the aggregate level. The model features multiple equilibria as well as (local and global) indeterminacy. Hence, expectations matter for resulting equilibrium dynamics. Despite its simplicity, the model creates a rich set of plausible implications. Our analysis contributes to a better understanding of the interaction between expectations and fundamentals in models with indeterminacy. The model is applied to replicate two striking empirical characteristics of macroeconomic development in East Germany since 1991.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3676

Classification and Topics

• Classification: Wirtschaft ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; Taxation, Subsidies, and Revenue: General ; Economic Growth and Aggregate Productivity: General
• Subject: increasing returns to scale ; capital mobility ; migration ; multiple equilibria ; indeterminacy ; history vs. expectations ; Produktionsfaktor ; Marktintegration ; Arbeitsmarkt ; Arbeitsmobilität ; Kapitalmobilität ; Skalenertrag ; Gleichgewicht ; Theorie ; Neue Bundesländer

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schäfer, Andreas ; Steger, Thomas
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/54925
• Last update: 10.03.2025, 11:45 AM CET