The Paper provides a reconciliation of Lucas’ paradox, based on fixed setup costs of new investments. With such costs, it does not pay a firm to make a ‘small’ investment, even though such an investment is called for by marginal productivity conditions. Using a sample of 45 developed and...

The Paper develops a model with lumpy setup costs of new investment, which govern the flows of FDI. Foreign investment decisions are two-fold: whether to export FDI and, if so, how much. The first decision is governed by total profitability considerations, whereas the second is governed by...

Even though financial markets today show a high degree of integration, the world capital market is still far from the textbook story of high capital mobility. The failure to have a tax scheme in which the rate of returns across countries are equated can result in inefficient capital flows across...

The ageing of the population shakes the confidence in the economic viability of pay-as-you-go social security systems. We demonstrate how in a political-economy framework the shaken confidence leads to the downsizing of the social security-system, and to the emergence of supplemental individual...

Like any trade activity, migration tends to generate gains to all parties involved - the migrants as well as the native-born population. With a mal-functioning labour market, however, migration will exacerbate the imperfections in the market. Consequently, it may lead to losses to the...

We study the role of productivity and corporate taxation as driving forces of FDI among OECD countries in the presence of threshold barriers, which generate two margins for FDI decisions. Some simulations, based on the estimation results, suggest that there are marked differences in the...

In the presence of lumpy adjustment costs of investment, globalization may have non-conventional effects on the level of investment and its cyclical behaviour. Free trade may lead to a discrete ‘jump’ in the level of investment, as it triggers discrete terms-of-trade changes which either...

Skilled migrants typically contribute to the welfare state more than they draw in benefits from it. The opposite holds for unskilled migrants. This suggests that a host country is likely to boost (respectively, curtail) its welfare system when absorbing high-skill (respectively, low-skill)...

Foreign direct investment (FDI) is observed to be a predominant form of capital flows to low- and middle-income countries with insufficiently developed capital markets. This paper analyses the problem of channelling domestic savings into productive investment, in the presence of asymmetric...

We develop a dynamic politico-economic theory of welfare state, featuring three groups of voters: skilled workers, unskilled workers, and old retirees. The welfare-state is modeled by a proportional tax on labor income to finance a demogrant in a balanced-budget manner to capture the essence of...