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Economic Growth with Unlimited Supplies of Foreign Labor: Theory and Some Evidence from the GCC

Published on: December 2010​
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Genre: Economics/Finance​ Category: Research Report/ Research Paper/ White Paper​
Economic Growth with Unlimited Supplies of Foreign Labor: Theory and Some Evidence from the GCC DSG Tarek Coury Mohamed Lahouel Working Paper Economics/Finance Labor and Demographics December 2010 WP10-11 The authors develop a modified version of the standard Solow and Ramsey growth models suited for countries with high proportions of foreign workers: firms hire foreign workers who are assumed to send a proportion of their wages as remittances. The paper shows that as the (foreign) supply of labor becomes more elastic, per capita income growth along the transitional dynamics converges to zero, the effect of TFP growth on per capita growth gradually disappears and growth in overall output converges to an AK-style model of growth. The model yields several testable predictions: Empirically, the authors consider the case of the states comprising the Gulf Cooperation Council and show that growth experiences of these countries are consistent with the predictions of this modified growth model. The model sheds light on certain causes of the natural resource curse as they apply to these countries and helps in explaining growth experiences of countries with high proportions of foreign workers.

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