THE CHOICE OF FACTOR MOBILITY IN A DYNAMIC WORLD

This paper compares the steady-state welfare implications of opening a two-country overlapping-generations world to international labor or capital mobility. By capturing the dual nature of labor mobility through the effect of migrants' saving on capital formation, this dynamic setting recovers the asymmetry between capital and labor denied to them in the existing static literature. It is shown that the optimal choice of factor mobility from a national viewpoint depends on the state of the economy with respect to the Golden Rule and on migrants' average savings ratio with respect to that of non-migrants.