International factor mobility and long-run economic growth

Long-run economic growth is analysed in a global model with many small countries prone to national level total factor productivity shocks. The possibility of precautionary saving or dissaving is a function of the higher-order moments and the cross-moments of the factor income distributions, which in turn depend on the global regime governing factor mobility. International capital mobility generates precautionary saving by eliminating interest uncertainty and by increasing earnings uncertainty, while international labour mobility reduces saving by achieving the opposite. If firms operate under a learning-by-doing investment externality, these effects then translate into long-run growth outcomes. However, besides these uncertainty effects on saving, there are also effects from aggregation, factor price determination and labour supply, which together show that international capital mobility unambiguously promotes economic growth above the autarky level but that the growth consequences of international labour mobility are less clear cut though conflicting effects.