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Reforms, Finance, and Current Accounts

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  • Giuseppe Bertola
  • Anna Lo Prete

Abstract

We analyze the implications of labor market reforms for an open economy’s human capital investment and future production. A stylized model shows that labor market deregulation can imply more positive current account balances if financial markets are imperfect and labor market institutions not only distort labor allocation, but also smooth income. Empirically, in OECD country-level panel data, we find that labor market deregulation has been positively related to current account surpluses on average and more strongly so when and where financial market access was more limited. These results are robust to inclusion of standard determinants of current account imbalances, and do not appear to be driven by cyclical phenomena.

Suggested Citation

  • Giuseppe Bertola & Anna Lo Prete, 2015. "Reforms, Finance, and Current Accounts," CESifo Working Paper Series 5206, CESifo.
  • Handle: RePEc:ces:ceswps:_5206
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    References listed on IDEAS

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    Cited by:

    1. Baas, Timo & Belke, Ansgar H., 2014. "Labor Market Reforms and Current Account Imbalances: Beggar-Thy-Neighbor Policies in a Currency Union?," IZA Discussion Papers 8453, Institute of Labor Economics (IZA).
    2. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2010. "Current account balances and structural adjustment in the euro area," International Economics and Economic Policy, Springer, vol. 7(1), pages 83-127, May.
    3. Schön, Matthias & Stähler, Nikolai, 2020. "When old meets young? Germany's population ageing and the current account," Economic Modelling, Elsevier, vol. 89(C), pages 315-336.
    4. Duval, Romain & Furceri, Davide & Tovar Jalles, João, 2022. "Labor and product market reforms and external Imbalances: Evidence from advanced economies," Journal of International Money and Finance, Elsevier, vol. 121(C).
    5. Ansgar Belke & Holger Zemanek & Gunther Schnabl, 2010. "Current Account Balances and Structural Adjustment in the Euro Area," Ruhr Economic Papers 0176, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. Giuseppe Bertola, 2014. "Labor market policies and European crises," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-11, December.
    7. Rossi, Mariacristina & Trucchi, Serena, 2016. "Liquidity constraints and labor supply," European Economic Review, Elsevier, vol. 87(C), pages 176-193.
    8. repec:zbw:rwirep:0505 is not listed on IDEAS
    9. repec:zbw:rwirep:0176 is not listed on IDEAS
    10. Timo Baas & Ansgar Belke, 2014. "Labor Market Reforms and Current Account Imbalances - Beggar-thy-Neighbor Policies in a Currency Union?," Ruhr Economic Papers 0505, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    11. Kelvin Onwuka & Anayochukwu Basil Chukwu & Tobechi Faith Agbanike, 2021. "Current account and financial reforms: Evidence from sub‐Saharan Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4303-4314, July.
    12. Guerrazzi, Marco & Meccheri, Nicola, 2012. "From wage rigidity to labour market institution rigidity: A turning-point in explaining unemployment?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(2), pages 189-197.
    13. Hochmuth, Brigitte & Moyen, Stephane & Stähler, Nikolai, 2019. "Labor market reforms, precautionary savings, and global imbalances," Discussion Papers 13/2019, Deutsche Bundesbank.
    14. Giuseppe Bertola, 2016. "Finance, Labour, Capital, and International Integration," Manchester School, University of Manchester, vol. 84(S1), pages 1-14, September.

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    More about this item

    Keywords

    labor market deregulation; precautionary savings;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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