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Reforms, Finance, and Current Accounts


  • Bertola, Giuseppe
  • Lo Prete, Anna


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

  • Bertola, Giuseppe & Lo Prete, Anna, 2015. "Reforms, Finance, and Current Accounts," CEPR Discussion Papers 10413, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10413

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    References listed on IDEAS

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    Cited by:

    1. Baas, Timo & Belke, Ansgar, 2014. "Labor Market Reforms and Current Account Imbalances - Beggar-thy-Neighbor Policies in a Currency Union?," Ruhr Economic Papers 505, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    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. 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.
    4. Rossi, Mariacristina & Trucchi, Serena, 2016. "Liquidity constraints and labor supply," European Economic Review, Elsevier, vol. 87(C), pages 176-193.
    5. 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.
    6. Giuseppe Bertola, 2016. "Finance, Labour, Capital, and International Integration," Manchester School, University of Manchester, vol. 84(S1), pages 1-14, September.
    7. 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.
    8. 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.
    9. repec:zbw:rwirep:0505 is not listed on IDEAS
    10. repec:zbw:rwirep:0176 is not listed on IDEAS

    More about this item


    labor market deregulation; precautionary savings;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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