DISEQUILIBRIUM GROWTH THEORY IN AN INTERNATIONAL PERSPECTIVE

We examine a two-good small open economy characterized by sluggish rea l wage rate adjustment. This causes short-run unemployment or excess-d emand on the labor market, which in turn affects the speed of capital accumulation. Global stability is ensured under certain conditions, ot herwise local stability and 'box' stability hold but endless business cycles cannot be long-run effects, i.e. may affect the long-run capita l labor ratio. The model is applied to examine the dynamic implication s of a change in the terms-of-trade and of real wage rigidity.