Free labor mobility and indeterminacy in models of neoclassical growth

Abstract

AbstractThis paper establishes the conditions under which indeterminacy can occur in a Neoclassical growth model with international labor mobility. In the model, workers are supposed to move freely across countries without restrictions, and according to a Harris–Todaro mechanism that makes migration flows sensitive to differences among labor markets conditions. The paper shows that indeterminacy requires the marginal returns to immigrant labor to be diminishing, and no need for productivity externalities at a social level. It also shows that immigration quotas can serve it well to eliminate indeterminacy and stabilize final output.