Indeterminacy in a Dynamic Small Open Economy with International Migration

In this paper we present a dynamic small open economy version of the standard neoclassical model of exogenous growth where we allow for international migration. We consider both the case of perfect world capital markets and the case of imperfect capital markets and show that local indeterminacy always arises independently of the capital market regime. Also, we show that the competitive equilibrium fails to reach the social optimum and that the only policy capable of establishing the …rst best is tax capital earnings. Our analysis thus supports the view that all the policy actions that aim at restricting migration ‡ows are always ine¤ective to achieve the …rst best.