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Capital Market Integration and Wages

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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 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15204.

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Date of creation: Aug 2009
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Handle: RePEc:nbr:nberwo:15204

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
F15 - International Economics - - Trade - - - Economic Integration
F3 - International Economics - - International Finance
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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