Labor Market Institutions and the Effects of Financial OpennessNovember 26, 2019
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.
- Du, Qingyuan, Jun Nie, and Shang-Jin Wei. “Labor Market Institutions and the Eﬀects of Financial Openness.” Federal Reserve Bank of Kansas City, Research Working Paper no. 19-11, November. Available at https://doi.org/10.18651/RWP2019-11