Capital specificity, imperfect labor mobility and growth in developing economies

Labor markets in developing economies may be afflicted by a multiplicity of interacting distortions. We consider a general equilibrium model of an economy distorted by both sector-specific sticky wages and imperfect mobility of labor. In this framework, we contrast the implications of capital accumulation in the short and long run. We show that, in contrast to both the case ill the absence of a sector-specific sticky wage and the case in the absence of imperfect labor mobility, the short and long-run effects of growth on the economic system converge as the degree of labor mobility is limited. (C) 2007 Elsevier Inc. All rights reserved.