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Capital Market Integration and Wages

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  • Henry, Peter Blair

    (Stanford University)

  • Sasson, Diego

    (Credit Suisse)

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    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 drives up the level of average annual compensation for each worker in the sample by 609 US dollars--an increase equal to 25 percent 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. Overall, the results suggest that trade in capital may have a larger impact on wages than trade in goods.

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    Bibliographic Info

    Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2019.

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    Date of creation: Mar 2009
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    Handle: RePEc:ecl:stabus:2019

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    References

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    1. Henry, Peter B., 2001. "Is Disinflation Good for the Stock Market?," Research Papers 1681, Stanford University, Graduate School of Business.
    2. Francesco Caselli & Daniel Wilson, 2003. "Importing Technology," NBER Working Papers 9928, National Bureau of Economic Research, Inc.
    3. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
    4. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc.
    5. Peter Blair Henry, 2006. "Capital account liberalization: theory, evidence, and speculation," Working Paper Series 2007-32, Federal Reserve Bank of San Francisco.
    6. Laura Alfaro & Sebnem Kalemli-Ozcan, 2004. "Why doesn't capital flow from rich to poor countries? An empirical investigation," 2004 Meeting Papers 53, Society for Economic Dynamics.
    7. Ottaviano, Gianmarco Ireo Paolo & Peri, Giovanni, 2008. "Immigration and National Wages: Clarifying the Theory and the Empirics," CEPR Discussion Papers 6916, C.E.P.R. Discussion Papers.
    8. Aitken, B. & Harrison, A. & Lipsey, R.E., 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States," Papers 95-21, Columbia - Graduate School of Business.
    9. Anusha Chari & Peter Henry, 2007. "Firm-Specific Information and the Efficiency of Investment," Discussion Papers 07-005, Stanford Institute for Economic Policy Research.
    10. Almeida, Rita K., 2003. "The Effects of Foreign Owned Firms on the Labor Market," IZA Discussion Papers 785, Institute for the Study of Labor (IZA).
    11. Pierre-Olivier Gourinchas & Olivier Jeanne, 2003. "The Elusive Gains from International Financial Integration," NBER Working Papers 9684, National Bureau of Economic Research, Inc.
    12. Wacziarg, Romain & Seddon, Jessica, 2000. "Trade Liberalization and Intersectoral Labor Movements," Research Papers 1652, Stanford University, Graduate School of Business.
    13. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1875-1911, December.
    14. Henry, Peter B., 2003. "Capital Account Liberalization, The Cost of Capital, and Economic Growth," Research Papers 1778, Stanford University, Graduate School of Business.
    15. Alfaro, Laura & Hammel, Eliza, 2007. "Capital flows and capital goods," Journal of International Economics, Elsevier, vol. 72(1), pages 128-150, May.
    16. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
    17. repec:bla:restud:v:73:y:2006:i:3:p:715-741 is not listed on IDEAS
    18. Galina Hale & Cheryl Long, 2011. "Did Foreign Direct Investment Put an Upward Pressure on Wages in China?," IMF Economic Review, Palgrave Macmillan, vol. 59(3), pages 404-430, August.
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    Cited by:
    1. Philipp an de Meulen, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 0298, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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