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Capital Account Liberalization, Real Wages, and Productivity

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  • Henry, Peter B.

    (Stanford U)

  • Sasson, Diego

Abstract

For three years after the typical developing country opens its stock market to inflows of foreign capital, the average annual growth rate of the real wage in the manufacturing sector increases by a factor of seven. No such increase occurs in a control group of developing countries. The temporary increase in the growth rate of the real wage permanently drives up the level of average annual compensation for each worker in the sample by 752 US dollars--an increase equal to more than a quarter of their annual pre-liberalization salary. The increase in the growth rate of labor productivity in the aftermath of liberalization exceeds the increase in the growth rate of the real wage so that the increase in workers' incomes actually coincides with a rise in manufacturing sector profitability.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1988.

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Date of creation: Feb 2008
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Handle: RePEc:ecl:stabus:1988

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Cited by:
  1. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
  2. Philip Arestis & Asena Caner, 2010. "Capital account liberalisation and poverty: how close is the link?," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 34(2), pages 295-323, March.
  3. Eswar Prasad & Marco Terrones & M. Ayhan Kose, 2008. "Does Openness to International Financial Flows Raise Productivity Growth?," IMF Working Papers 08/242, International Monetary Fund.

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