Why Don’t Labor and Capital Flow Between Young and Old Countries?

In this paper we investigate the twofold effect of demographics on international factor flows in a model with endogenous policy constraints on both foreign direct investment and migration. Factor price differences between industrialized and developing countries create economic incentives for migrati...

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Bibliographic Details
Published in:MAGKS - Joint Discussion Paper Series in Economics (Band 42-2009)
Main Authors: Calahorrano, Lena, an de Meulen, Philipp
Format: Work
Language:English
Published: Philipps-Universität Marburg 2009
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Online Access:PDF Full Text
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Summary:In this paper we investigate the twofold effect of demographics on international factor flows in a model with endogenous policy constraints on both foreign direct investment and migration. Factor price differences between industrialized and developing countries create economic incentives for migration to developed countries and for capital flows to less developed countries. However, political barriers to immigration in developed countries and expropriation risks in developing countries impede labor and capital flows. Using a political economy approach that takes into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy restrictions interact. We find that, in the presence of mobility constraints, larger demographic differences between countries need not result in an increase of factor flows.
Physical Description:27 Pages
ISSN:1867-3678
DOI:10.17192/es2024.0023