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Capital Market Integration and Wages

  • Henry, Peter Blair

    (Stanford University)

  • Sasson, Diego

    (Credit Suisse)

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    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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    File URL: http://gsbapps.stanford.edu/researchpapers/library/RP2019.pdf
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    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
    Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
    Phone: (650) 723-2146
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    Web page: http://gsbapps.stanford.edu/researchpapers/
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    1. Peter Blair Henry, 2003. "Capital-Account Liberalization, the Cost of Capital, and Economic Growth," American Economic Review, American Economic Association, vol. 93(2), pages 91-96, May.
    2. Peter Blair Henry, 2006. "Capital account liberalization: theory, evidence, and speculation," Working Paper Series 2007-32, Federal Reserve Bank of San Francisco.
    3. Wacziarg, Romain & Wallack, Jessica Seddon, 2004. "Trade liberalization and intersectoral labor movements," Journal of International Economics, Elsevier, vol. 64(2), pages 411-439, December.
    4. Anusha Chari & Peter Henry, 2007. "Firm-Specific Information and the Efficiency of Investment," Discussion Papers 07-005, Stanford Institute for Economic Policy Research.
    5. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 98, University of California, Davis, Department of Economics.
    6. 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.
    7. Francesco Caselli & Daniel Wilson, 2003. "Importing technology," Working Paper Series 2003-04, Federal Reserve Bank of San Francisco.
    8. Henry, Peter B., 2001. "Is Disinflation Good for the Stock Market?," Research Papers 1681, Stanford University, Graduate School of Business.
    9. Sebnem Kalemli-Ozcan & Laura Alfaro & Vadym Volosovych, 2003. "Why doesn’t Capital Flow from Rich to Poor Countries? An Empirical Investigation," Working Papers 2003-01, Department of Economics, University of Houston.
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    11. 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.
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    15. 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).
    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.
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    19. 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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