Original scientific paper
https://doi.org/10.1080/1331677X.2016.1193947
Labour institutions and vulnerability of developing economies under capital inflows
Vladimir Matveenko
orcid.org/0000-0002-2465-9067
Abstract
The paper argues that labour institutions, such as efficiency wages
or their analogues more typical for the former planned economies,
can aggravate a vulnerability of developing economies caused by
windfalls, such as additional oil income or foreign aid. The economy
is modelled by use of the, so-called, fK endogenous growth model
based on microfoundations describing the labour institutions.
Despite a rather small formal difference, the model differs much in its
properties from traditional growth models. The fK model generalises
the well-known AK model but is free of the known shortcomings of
the latter. Our analytical results as well as computer simulations show
that, despite the presence of temporary acceleration opportunities,
the unstable windfalls prohibit long-run sustainable growth. The
windfall can be followed by a restructuring leading to a long-run
economic decline after ceasing the capital inflow. The effect of the
capital inflow depends on the relation between the expected inflow
growth rate and the economic growth rate of the benchmark model
(without inflow), as well as on the time preferences in the economy. If
the capital inflow is expected to grow faster than the proper growth
rate of the economy, this can lead to a decline in wages.
Keywords
Economic growth; economic development; labour institutions; production function; foreign aid; oil windfall; economic dynamics
Hrčak ID:
171775
URI
Publication date:
22.12.2016.
Visits: 1.149 *