ABSTRACT
Besides the markets for goods, the factor markets play a decisive role in the paradigm of the world economy. Equilibrium of the world economy also requires the factor markets to be in equilibrium. If this equilibrium is disturbed, the world economy has to adjust. The adjustment processes in the world factor markets are thus of great importance. The world labor market has to find an equilibrium between the demand for and the supply of labor; migration and trade are important adjustment mechanisms (section 3.1). The other crucial factor market is the world capital market, bringing the demand for and the supply of new real capital, i.e. savings and investment, into balance (section 3.2). Important questions are whether national capital markets are segmented and how close is the relation between national investment and national savings (sections 3.3 and 3.4). Historically, some countries have developed from net debtors to net creditors. This is the debt cycle hypothesis (section 3.5). For a given production technology, the prices of labor and capital are related to each other in a factorprice frontier (section 3.6). In a knowledge society, the world market for technological knowledge has great importance. Moreover, the world market for natural resources including energy, oil, and the environment has gained great relevance (section 3.8). Finally, shocks on the factor markets are dealt with (section 3.9).
