Financial Openness and Employment: The Need for Coherent International and National Policies.

Abstract: External financial liberalization has led to a surge in international capital flows since the early 1990s. While the direct growth benefits of financial openness are unclear, it has led developing countries to engage in costly reserve accumulation on an unprecedented scale. Although this offers some protection against financial crises, many developing countries have nonetheless experienced greater economic volatility and full-scale financial crises since the early 1990s. These crises have had a considerable impact on GDP and long-term growth prospects, but it appears that labour has suffered disproportionately as labour market indicators typically lack economic recovery. Furthermore, the labour share in national income is typically eroded during a financial crisis. The present paper, therefore, draws the conclusion that volatility in international financial markets is currently perhaps one of the most harmful factors for enterprises and labour in developing countries. Hence, the paper suggests how greater policy coherency between international and national financial, economic and employment policies can give greater attention to employment and incomes

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