Working Paper
Labor Market Institutions and the Effects of Financial Openness
Abstract: 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: Unemployment; Labor Market Rigidity; capital account liberalization; Developing Countries; Financial Openness;
JEL Classification: E24; F41; F44; J08;
https://doi.org/10.18651/RWP2019-11
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Bibliographic Information
Provider: Federal Reserve Bank of Kansas City
Part of Series: Research Working Paper
Publication Date: 2019-11-26
Number: RWP 19-11
Pages: 1-39
Related Works
- Working Paper Revision (2020-02-03) : Labor Market Institutions and the Effects of Financial Openness
- Working Paper Original (2019-11-26) : You are here.