Labor Market Institutions and the Effects of Financial Openness
Jun Nie () and
No RWP 19-11, Research Working Paper from Federal Reserve Bank of Kansas City
We propose a new channel to explain why developing countries may fail to beneﬁt from ﬁnancial globalization, based on labor market institutions. In our model, ﬁnancial openness in a developing country with a rigid labor market leads to capital outﬂow, and both employment and output fall. In contrast, ﬁnancial openness in a developing country with a ﬂexible labor market beneﬁts the country. Our model suggests that enhancing labor market ﬂexibility is a complementary reform for developing countries opening capital accounts.
Keywords: Developing Countries; Capital Account LIberalization; Labor Market Rigidity; Financial Openness; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 F41 F44 J08 (search for similar items in EconPapers)
Date: 2019-11-26, Revised 2020-02-03
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-mac and nep-opm
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