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Capital Markets Integration and Labor Market Institutions

A major development in recent decades in industrialised countries is the decline in national savings rates. Over the same period, the labour’s share of national income has also declined in many industrialised countries. This paper seeks to provide a unified account of these developments. We show that globalization, in the form of increased capital mobility, provides incentives to implement labour market reforms that raise the returns to capital and improve efficiency. Nevertheless, in a world where aggregate savings reflect life-cycle motives and are mainly performed out of labour income, the associated fall in the labour share reduces aggregate savings and the pace of capital accumulation. This inefficient outcome is due to competition for capital between countries generating negative externalities.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 144.

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Date of creation: 01 Oct 2005
Date of revision: 01 Nov 2007
Handle: RePEc:sef:csefwp:144
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  8. Rodrik, Dani & van Ypersele, Tanguy, 2001. "Captial mobility, distributive conflict and international tax coordination," Journal of International Economics, Elsevier, vol. 54(1), pages 57-73, June.
  9. Beissinger, Thomas, 2001. "The Impact of Labor Market Reforms on Capital Flows, Wages and Unemployment," IZA Discussion Papers 390, Institute for the Study of Labor (IZA).
  10. Marco Bassetto, 2008. "Political Economy of Taxation in an Overlapping-Generations Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 18-43, January.
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  17. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
  18. Zhao, Laixun, 1995. "Cross-hauling direct foreign investment and unionized oligopoly," European Economic Review, Elsevier, vol. 39(6), pages 1237-1253, June.
  19. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
  20. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  21. Graziella Bertocchi, 2003. "Labor Market Institutions, International Capital Mobility, and the Persistence of Underdevelopment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 637-650, July.
  22. Uhlig, Harald & Yanagawa, Noriyuki, 1996. "Increasing the capital income tax may lead to faster growth," European Economic Review, Elsevier, vol. 40(8), pages 1521-1540, November.
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  24. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, vol. 11(1), pages 33-57, January.
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