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Is There Any Linkage between Sectoral Capital-labour Ratios, Total Factor Productivity, and Wages?

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  • Badri Narayan Rath
  • Bhushan Praveen Jangam

Abstract

This paper investigates the relationship between sectoral capital-labor ratios, total factor productivity (TFP) and wages based on the contemporary Balassa-Samuelson model. To proceed, first, we identify a tradable and nontradable sector using an average of export to value added ratio for a group of developed and developing countries over the period 2001 to 2014. After accounting for cross-sectional dependence in the data, we find strong evidence that TFP of the tradable sector and wages significantly determines sectoral capital-labor ratios in both developed and developing countries. The long-run elasticities show that improvement in TFP declines the capital-labor ratios, whereas wages increase the capital-labor ratios in both tradable and nontradable sectors across developed and developing countries.

Suggested Citation

  • Badri Narayan Rath & Bhushan Praveen Jangam, 2020. "Is There Any Linkage between Sectoral Capital-labour Ratios, Total Factor Productivity, and Wages?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(15), pages 3662-3677, December.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:15:p:3662-3677
    DOI: 10.1080/1540496X.2020.1784140
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    Cited by:

    1. Sri Juli Asdiyanti Samuda, 2023. "How Global Value Chains Affect Economic Output And Unemployment: An Empirical Evidence From Asean Countries," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(3), pages 513-538, September.
    2. Zhang, Cheng & Yao, Yangyang & Zhou, Han, 2023. "External technology dependence and manufacturing TFP: Evidence from China," Research in International Business and Finance, Elsevier, vol. 64(C).

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