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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.

Suggested Citation

  • Henry, Peter B. & Sasson, Diego, 2008. "Capital Account Liberalization, Real Wages, and Productivity," Research Papers 1988, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:1988
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    2. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    3. Malgorzata Sulimierska, 2014. "Total factor productivity estimation for Polish manufacturing industry: A comparison of alternative methods," Working Paper Series 6714, Department of Economics, University of Sussex Business School.
    4. Bonfiglioli, Alessandra, 2008. "Financial integration, productivity and capital accumulation," Journal of International Economics, Elsevier, vol. 76(2), pages 337-355, December.
    5. 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.
    6. Philip Arestis & Asena Caner, 2010. "Capital account liberalisation and poverty: how close is the link?," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 295-323, March.
    7. Joel Peress & jim goldman, 2016. "Firm Innovation and Financial Analysis: How Do They Interact?," 2016 Meeting Papers 531, Society for Economic Dynamics.
    8. Mekki Hamdaoui & Saif Eddine Ayouni & Samir Maktouf, 2022. "Capital Account Liberalization, Political Stability, and Economic Growth," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(1), pages 723-772, March.
    9. Aharonovitz Gilad D & Miller James D, 2010. "Are Net FDI Flows and Reversals of Capital Flows a Result of Output Growth?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-28, August.
    10. Gilad Aharonovitz & James Miller, 2008. "Are Net FDI Flows and Reversals of Capital Flows a Result of Output Growth?," Working Papers 2009-05, School of Economic Sciences, Washington State University.
    11. Malgorzata Sulimierska, 2014. "Effectiveness of capital control, economic growth and animal spirit: A cross-country analysis," Working Paper Series 7014, Department of Economics, University of Sussex Business School.
    12. Chad P. Bown & Daniel Lederman & Samuel Pienknagura & Raymond Robertson, 2017. "Better Neighbors," World Bank Publications - Books, The World Bank Group, number 25736, December.
    13. Peress, Joël & Goldman, Jim, 2017. "Firm R&D and Financial Analysis: How Do They Interact?," CEPR Discussion Papers 12433, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - 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, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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