The e¤ects of labor market reforms are studied in an innovation-driven model of endogenous growth with a heterogeneous labor force, labor market rigidities, and structural unemployment. The model is calibrated for a stylized middle-income economy in Latin America and used to perform a range of experiments, including both individual labor market reforms (cuts in the minimum wage and unemployment ben-e…t rates) and composite reform programs involving additional measures. The results show that individual reforms may generate con ‡icting e¤ects on growth and welfare in the long run, even in the presence of positive policy externalities. A reduction in training costs may also create an oversupply of quali…ed labor and higher unemployment in the long run. Public investment in infrastructure, partly through its e¤ects on innovation, can help to mitigate this oversupply problem.
This paper presents an endogenous growth model with heterogeneous labour, endogenous unemployment, and public sector corruption. Unlike most previous studies, the model does not separate public o¢cials and private individuals into two distinct groups. Instead, taking up bureaucratic appointment as a public servant is modelled as an occupational choice, which then allows for the endogenous determination of the proportion of public o¢ cials, the share of corrupt o¢ cials among them, and the public investment e¢ ciency of the economy. The dynamics of endogenous corruption and unemployment are studied using numerical policy experiments based on a stylized representation of a middle-income African economy with high corruption and unemployment. The main …nding is that, large-scale public infrastructure push has no e¤ect on raising growth in an economy with high corruption. However, if preceded by social and anti-corruption policies that successfully induce a structural change, it will then be e¤ective in raising growth.
This paper develops an endogenous growth model with industrial transformation and a stylised foreign expert-based 'internalisation advantage'framework to determine the composition of heterogeneous foreign multinationals in a developing host economy. A key feature of the model is the introduction of a dichotomous relationship between domestic and foreign …rms, where the latter perceives heterogeneity among the productivity of domestic workers. This results in the skills acquisition decision and foreign subsidiaries' operational mode choice to be determined along the same ability distribution of the host economy. This subsequently determines the shares of the di¤erent types of multinationals in a host economy. Parameterised for Malaysia, policy experiments are conducted. A balanced investment liberalisation measure for all foreign …rms is found to outperform measure targeting only selected types, though there is a threshold doing-business cost value below which such a standalone FDI-promoting policy does not generate positive growth e¤ect. This then calls for composite programme that maximises the policy complementarities between human capital and FDI-promoting policies.JEL Classi…cation Numbers: F23, O14, O33, O41.
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