Journal Article

Capital account openness and the labour share of income

Arjun Jayadev

in Cambridge Journal of Economics

Published on behalf of Cambridge Political Economy Society

Volume 31, issue 3, pages 423-443
Published in print May 2007 | ISSN: 0309-166X
Published online January 2007 | e-ISSN: 1464-3545 | DOI: http://dx.doi.org/10.1093/cje/bel037
Capital account openness and the labour share of income

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  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • General Aggregative Models
  • Labour-Management Relations, Trade Unions, and Collective Bargaining
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This paper investigates the relationship between capital account openness and the share of labour in national income. Employing a new index of financial openness and a cross-country panel of labour shares available from the United Nations System of National Accounts, the author shows a robust negative correlation between the degree of openness and the labour share. Although this effect is not present for low income countries, the direct negative relationship holds for all other subsamples and in the presence of a variety of controls. A plausible explanation is that openness alters the conditions of bargaining between labour and capital. By increasing the bargaining strength of capital vis-a-vis labour, increased capital mobility raises rents accruing to capital. Thus, capital account openness may reduce labour's share of income in the firm, and thereby, at an economy-wide level, its share of national output.

Keywords: Capital Mobility; Factor Shares; Bargaining; Openness; Labour Share; E1; E25; F3; J53

Journal Article.  8695 words.  Illustrated.

Subjects: Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; General Aggregative Models ; Labour-Management Relations, Trade Unions, and Collective Bargaining ; International Finance

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