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Endogenous Growth and Equilibrium Unemployment in a North–South Model
Author(s) -
Hoon Hian Teck
Publication year - 2002
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00137
Subject(s) - economics , endogenous growth theory , unemployment , payroll , context (archaeology) , natural rate of unemployment , general equilibrium theory , debt , productivity , compensation (psychology) , macroeconomics , unemployment rate , monetary economics , paleontology , accounting , psychoanalysis , economic growth , biology , human capital , psychology
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.