Browsing by Subject "factor mobility"

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  • Meichsner, Julia (2001)
    The objective of this study is to analyse the applicability of growth predictions in the case of the Eastern enlargement. For this purpose the growth model developed by Uwe Walz (1998) was chosen and compared to empirical data as well as to further studies about the process of Eastern enlargement. In the first part of the paper Walz´ model is introduced. The production patterns of a trade union consisting of two countries are described before the enlargement. Then, a third technology-deficient country is integrated in two steps: First, barriers to trade are removed, and secondly migration is liberalized. The model shows that free trade between the two trade blocks with specialization patterns of the Heckscher-Ohlin type causes the growth rate to shift. This holds true in the next step, when skilled workers are assumed to immigrate to the countries with the higher level of technology. On the contrary, the growth rate declines when unskilled workers are assumed to migrate to the technologically-advanced countries. In the second part, the growth predictions of Walz´ model are decomposed in their underlying assumptions, defined and compared to empirical data regarding the process of the Eastern enlargement. The comparison reveals a high degree of congruency between the theoretical assumptions and the corresponding developments in reality. This congruency comes to an end when further studies on the Eastern enlargement are called in. In the final part of the paper, the results of the comparisons between Walz´ model and the data and studies about the Eastern enlargement are evaluated trying to give an answer to the question as to how applicable the theoretical growth predictions are in the case of the Eastern enlargement.
  • Kähkönen, Mikko (2000)
    The objective of this study is to analyse the effects of an enlargement of a common market on economic growth and incomes. The analytical framework is developed by Uwe Walz (1998). The underlying growth model draws on the work of Grossman and Helpman (1991). Growth is explained with continuous developing of new differentiated intermediate inputs in an R&D sector. The use of these intermediates yields economies of scale and further, productivity gains in final goods production. The countries' specialisation patterns are determined together with the mentioned scale economies and agglomeration advantages and disadvantages arising from transport costs. The new country to the common market is considered to be technologically lagging compared to the initial countries. The differences in technology are of such magnitude that the entrant cannot take part in the R&D activity at all. The study of the enlargement is divided into two sequences: liberalisation of trade and liberalisation of migration. The result of removing the barriers to trade is faster economic growth and income convergence between the initial common market countries. The enhanced welfare is observed as better wages in the new member state. The specialisation patterns become less drastic, with the reallocation of resources leading to the innovating activity being more evenly distributed. In the case of labour mobilisation, faster growth is achieved with qualifications. The migration of unskilled workers to the initial common market countries slows down growth. The immigration of skilled workers in turn leads to faster growth if and only if it was used relatively less intensively in the new member country prior to the enlargement. In this case wages converge. The starting point of the study consists of the following papers: Grossman, G. M. & Helpman, E. (1991): Innovation and Growth in the Global Economy. The MIT Press, Cambridge, Ma. USA. Walz, U. (1998): Does an Enlargement of a Common Market Stimulate Growth and Convergence? Journal of International Economics 45, 297-321. Walz, U. (1996): Transport costs, Intermediate Goods, and Localized Growth. Regional science and Urban Economics 26, 671-695.
  • Gangnuss, Danila (2005)
    The European Union has created a massive market for goods, services, capital and labour. In principle, goods and services as well as factors of production can move freely across the national borders within the European Union. Migration of the factors of production is driven by the country-specific differences in marginal productivity. As a result of this, migration ensures the most efficient use of the factors of production and therefore promotes the general welfare. However, international mobility of the factors of production might threaten national welfare of the countries that participate in economic integration. For some of the countries, this raises concerns about loosing factors of production in favor of the other member-states of the European Union. The purpose of this thesis is to analyze how mobility of skilled labour affects income taxation decisions in the countries that face economic integration. The thesis identifies optimal patterns of taxes and of public expenditures in the countries that face international agglomeration of industry. It poses the question of whether there exists an optimal size of the public sector in the presence of economic integration. Starting with the core-periphery models of Krugman (1991a), Fujita et al. (1999) and Forslid (1999), the thesis considers a new economic geography model of tax competition (Andersson and Forslid 2001), where two initially identical countries compete for internationally mobile skilled workers. The model contains two types of equilibria. In the dispersed equilibrium, manufactured production and skilled workers are located in both countries. In the agglomerated equilibrium, manufactured production and skilled workers are concentrated in one of the countries. For both types of equilibrium we construct taxes, which are optimal for the purpose of preserving current distribution of manufactured production and of skilled workers. We show that it is always optimal to tax the income of skilled workers at some positive rate. In the dispersed equilibrium, taxes on the income of skilled workers cannot be increased above some critical level without producing agglomeration of industry. However, in the agglomerated equilibrium, economic integration decreases sensitivity of skilled workers with respect to fiscal incentives. As a result of this, the scope for income taxation of skilled workers in the agglomerated equilibrium does not monotonically decline with trade costs. We also show that taxes on the income of unskilled workers determine the size of the public sector in the dispersed equilibrium but not in the agglomerated equilibrium. It is interesting that in the country, which contains agglomeration of industry, taxes on the income of unskilled workers can be decreased without reducing the size of the public sector.