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.
Economic growth, growth models, employment, development
Growth and Development | Labor Economics
Review of Development Economics
HOON, Hian Teck.
Endogenous Growth and Equilibrium Unemployment in a North-South Model of the World Economy. (2002). Review of Development Economics. 6, (1), 26-38. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/496
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