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Direct Investment, Rising Real Wages and the Absorption of Excess Labor in the Periphery

In: G7 Current Account Imbalances: Sustainability and Adjustment

  • Michael P. Dooley
  • David Folkerts-Landau
  • Peter Garber

This paper sets out the political economy behind Asian governments' participation in a revived Bretton Woods System. The overriding problem for these governments is to rapidly integrate a large pool of underemployed labor into the industrial sector. The principal constraints are inefficient domestic resource and capital markets, and resistance to import penetration by labor in industrial countries. The system has evolved to overcome these constraints through export led growth and growth of foreign direct investment. Periphery governments' objectives for the scale and composition of gross trade in goods and financial assets may dominate more conventional concerns about international capital flows.

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This chapter was published in:
  • Richard H. Clarida, 2007. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Books, National Bureau of Economic Research, Inc, number clar06-2, May.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0125.
    Handle: RePEc:nbr:nberch:0125
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480 National Bureau of Economic Research, Inc.
    2. Devarajan, Shantayanan & Fisher, Anthony C, 1981. "Hotelling's "Economics of Exhaustible Resources": Fifty Years Later," Journal of Economic Literature, American Economic Association, vol. 19(1), pages 65-73, March.
    3. Assaf Razin & Efraim Sadka, 2002. "Gains from FDI Inflows with Incomplete Information," NBER Working Papers 9008, National Bureau of Economic Research, Inc.
    4. Boyreau-Debray, Genevieve & Wei, Shang-Jin, 2004. "Pitfalls of a State-Dominated Financial System: The Case of China," CEPR Discussion Papers 4471, C.E.P.R. Discussion Papers.
    5. Michael Dooley & David Folkerts-Landau & Peter Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
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