Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale

Andreas Schaefer, Thomas Steger

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6 Citations (Scopus)
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Abstract

What are the dynamic consequences of comprehensive integration shocks? The answer to this question appears all but trivial. A dynamic macroeconomic model is set up of a small open economy with capital mobility, migration and increasing returns to scale. The model features multiple equilibria as well as (local and global) indeterminacy. Despite its simplicity, the model creates a rich set of plausible implications. This paper clarifies the mechanics that may lead an integrating economy to the good or to the bad equilibrium by showing how fundamentals and expectations interact in the process of equilibrium selection. The model is applied to replicate two striking empirical characteristics of macroeconomic development in East Germany since 1990.
Original languageEnglish
Pages (from-to)783-807
Number of pages25
JournalReview of International Economics
Volume22
Issue number4
Early online date15 Apr 2014
DOIs
Publication statusPublished - 1 Sep 2014

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returns to scale
market
macroeconomics
economics
macroeconomic development
open economy
German Democratic Republic (GDR)
mechanic
mechanics
migration
economy
factor market

Cite this

Journey into the Unknown? Economic Consequences of Factor Market Integration under Increasing Returns to Scale. / Schaefer, Andreas; Steger, Thomas.

In: Review of International Economics, Vol. 22, No. 4, 01.09.2014, p. 783-807.

Research output: Contribution to journalArticle

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