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Capital Account Liberalization, Real Wages, and Productivity

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Author Info
Peter Blair Henry
Diego Sasson

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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 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13880.

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Date of creation: Mar 2008
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Handle: RePEc:nbr:nberwo:13880

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. M. Ayhan Kose & Eswar Prasad & Marco Terrones, 2008. "Does Openness to International Financial Flows Raise Productivity Growth?," IMF Working Papers 08/242, International Monetary Fund. [Downloadable!]
    Other versions:
  2. Philip Arestis & Asena Caner, 2008. "Capital Account Liberalization and Poverty: How Close is the Link?," Working Papers 0811, TOBB University of Economics and Technology, Department of Economics. [Downloadable!]
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