Investigating the Role of Labor Division into Internal and External Sectors in the Iranian Economy within the Framework of Dynamic Stochastic General Equilibrium Model

Izadi, Hamidreza; Sayareh, Morteza

doi:10.22075/jem.2019.18181.1339

Investigating the Role of Labor Division into Internal and External Sectors in the Iranian Economy within the Framework of Dynamic Stochastic General Equilibrium Model

Document Type : Original Article

Authors

Hamidreza Izadi ¹

Morteza Sayareh ²

¹ Assistant Professor of Department of Economics, Chabahar Maritime University

² the Member of Department of Economics, Chabahar Maritime University

10.22075/jem.2019.18181.1339

Abstract

The experience of countries has shown that easiness of transfer of labor in base on the joint cooperation from one country to another has many advantages and significant effects on macroeconomic variables. Due to the importance, this paper presents a modified calibrated model for the Iranian economy in which the labor is able to move from domestic economy to the oversea country. In this model for simplicity of investigating of the role of labor division, a small open economy framework is considered and the average of household labor supply according to the heterogeneous factors, is divided into internal and external sector. The results of dividable labor existence in these models produce an especial difference and presents the domestic production due to the positive shock in foreign wages is reduced and the labor will keep out of domestic production and go to employment in foreign market while private consumption will increase. Also, in this economy insomuch the increase in foreign labor income and increasing of exchange revenues, the net exports will rise and foreign bond will reduce. Finally, the Labor movement to abroad cause to increase foreign revenue and in generally, welfare has increased.

Keywords

Open Economy

Divisible Labor

DSGE Model