Long-run issues in the dynamic, open economy, essays on trade, factor mobility, integration and economic growth

by Bodman, Philip M.

This thesis examines the nature of international factor flows and the impact that trade and factor mobility has on economic growth and the pattern of economic development. Firstly, using a simple dpamic. generai equilibrium model, the impact of labour migration on growth and economic convergence is examined when human capital exhibits externalities which generate potential imeasing retums to scale in production. Various patterns of migration and growth are possible given the parameters of the mode1 and the model illustrates t hat Brain Drain migration outcornes c m lead to no convergence in output and growth rates across countnes and possibly divergence. The importance of altruism and familial decision making as a rationale for migration, when individuds care about the human capital or educational opportunites facing future generations, is also highlighted. The thesis then analyses the magnitude and importance of capital and labour flows and trade for economic growth. using time series techniques of cointegration. vector error correction and analysis of structurd break. The so-cded Feldstein-Horioka Puzzle, Mplying limited international capital mobility, is refuted for va,rïous OECD countries once appropriate time series techniques are used to overcome statisticd problems with standard econometric methods. The export-led growth hypothesis is supported for two small open economies. Austraha and Canada, using cointegration methods, aithough the magnitude of the reiationship between exports and output growth is found not to be large. Finally, the long-run importance for economic growth in Australia and Canada of openness, integration and migration. as well as disaggregated capital (including a proxy for human capital), is examined by using time series tethniques tO es timate well-specified long-run production func tions. Trade, openness and migration are again found to be significant determinants of economic growth, at least for the two smd open economies examined.