Ricerc@Sapienza

This paper presents a Ramsey-like dynamic small open economy with endogenous labormigration. In the model, the domestic economy is free to borrow or lend as much as itwants at the given world interest rate, and individuals are supposed to be free to move froma country to another in response to the emergence of a wage differential between countries.Our analysis can be ideally split in two parts. Initially, we propose a baseline model inwhich only natives are allowed to save and invest in capital assets and traded bonds,whereas immigrants are credit constrained. Next, we provide an extension in which allindividuals, including immigrants, have full access to international financial markets. Wefind that the steady state is always local indeterminate, and that the adjustment dynamicsof the competitive equilibrium is dependent upon the initial level of the immigration ratio.