Capital Account Liberalization, Structural Change, and Female Employment

Abstract

Abstract This paper studies the effects of capital account liberalization on female employment and its implications for structural change in developing countries. Using a large industry-level panel of 88 low and low-middle-income countries, we provide evidence that episodes of financial liberalization lead to large declines in female employment in tradable sectors. These declines are driven primarily by structural reallocation effects between sectors, although we also find modest changes in the gender composition of employment within sectors, depending on the sample definition. Based on this evidence, we build a stylized model of a small open economy with tradable and nontradable sectors featuring occupational segregation across genders. We use this framework to study the impact of capital inflows and the female wage penalty on female employment in tradables and the real exchange rate. Our model also implies that when the female burden of non-market home production is sufficiently large, capital inflows will disproportionately hurt female employment relative to male employment.