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The neoclassical growth model is extended to allow for mobile labor. Following
a negative shock to a small economy's capital stock, capital and labor
frictions effect an equilibrium transition path during which wages remain
below their steady-state level. Outmigration directly contributes to faster
income convergence but also creates a disincentive for gross capital formation.
The net result is that across a wide range of calibrations, the speed of
income convergence is relatively insensitive to the degree of labor mobility.
Jordan Rappaport is an economist at the Federal Reserve Bank of Kansas
City. The author would like to thank Alberto Alesina, Larry Ball, Robert
Barro, Chris Foote, Ed Glaeser, Matt Kahn, David Laibson, Philip Lane,
John McHale, Jong-Wha Lee, Dani Rodrik, Jeff Sachs, David
Weil and seminar participants at the Federal Reserve Bank of Kansas City,
the 1999 Federal Reserve System Regional Meeting, Harvard University, Brown
University, and the University of Maryland for advice and feedback. He
would also like to thank the Center for International
Development at Harvard University and the National Science Foundation for
financial support. The views expressed in this paper are those of the author
and do not necessarily reflect the views of the Federal Reserve Bank of
Kansas City or the Federal Reserve System.
Jordan e-mail: jordan.m.rappaport@kc.frb.org
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