Some implications of external labour mobility for the development of micro‐states

Uses a one‐sector model to investigate how external labour mobility can affect the economic performance of micro‐states. In the absence of restrictions on labour market flows between a micro‐state and a larger economy, the micro‐state becomes virtually an extension of the large economy. It may expand or contract in total size relative to the larger economy, and gain or lose population accordingly; but the linkage of its level of real wages to the level of real wages in the larger economy constrains opportunities for independent growth in labour productivity and hence in output per capita. A labour‐exporting micro‐state will experience a more autonomous form of economic development when a binding quota on emigration detaches the domestic real wage from the foreign real wage. However, per capita growth is likely to be of a lower base than under conditions of unrestricted access.