IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/13880.html
   My bibliography  Save this paper

Capital Account Liberalization, Real Wages, and Productivity

Author

Listed:
  • Peter Blair Henry
  • Diego Sasson

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

  • Peter Blair Henry & Diego Sasson, 2008. "Capital Account Liberalization, Real Wages, and Productivity," NBER Working Papers 13880, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13880
    Note: CF EFG IFM ITI LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w13880.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. De Long, J. Bradford & Summers, Lawrence H., 1993. "How strongly do developing economies benefit from equipment investment?," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 395-415, December.
    2. Maurice Obstfeld, 1998. "The Global Capital Market: Benefactor or Menace?," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 9-30, Fall.
    3. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1875-1911, December.
    4. Stanley Fischer & Ratna Sahay & Carlos A. Végh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
    5. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, October.
    6. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
    7. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    8. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    9. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
    10. Raghuram G. Rajan & Luigi Zingales, 2000. "The Great Reversals: The Politics of Financial Development in the 20th Century," OECD Economics Department Working Papers 265, OECD Publishing.
    11. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    12. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    13. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    14. Jeffrey A. Frankel., 1994. "The Internationalization of Equity Markets: Introduction," Center for International and Development Economics Research (CIDER) Working Papers C94-033, University of California at Berkeley.
    15. M Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 8-62, April.
    16. Joseph E. Stiglitz, 1999. "Reforming the Global Economic Architecture: Lessons from Recent Crises," Journal of Finance, American Finance Association, vol. 54(4), pages 1508-1521, August.
    17. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 715-741.
    18. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 21-42, Fall.
    19. Caselli, Francesco & Wilson, Daniel J., 2004. "Importing technology," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 1-32, January.
    20. Chari, Anusha & Blair Henry, Peter, 2008. "Firm-specific information and the efficiency of investment," Journal of Financial Economics, Elsevier, vol. 87(3), pages 636-655, March.
    21. 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.
    22. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    23. Jeffrey A. Frankel, 1994. "Introduction to "The Internationalization of Equity Markets "," NBER Chapters, in: The Internationalization of Equity Markets, pages 1-20, National Bureau of Economic Research, Inc.
    24. Joseph E. Stiglitz, 1999. "Reforming the Global Economic Architecture: Lessons from Recent Crises," Journal of Finance, American Finance Association, vol. 54(4), pages 1508-1522, August.
    25. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
    26. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15, January.
    27. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    28. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    29. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 445-502.
    30. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Books, National Bureau of Economic Research, Inc, number fran94-1, May.
    31. Mr. Stanley Fischer & Ms. Ratna Sahay & Mr. Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 2002/197, International Monetary Fund.
    32. Alfaro, Laura & Hammel, Eliza, 2007. "Capital flows and capital goods," Journal of International Economics, Elsevier, vol. 72(1), pages 128-150, May.
    33. Peter Blair Henry, 2002. "Is Disinflation Good for the Stock Market?," Journal of Finance, American Finance Association, vol. 57(4), pages 1617-1648, August.
    34. Levine, Ross & Zervos, Sara, 1998. "Capital Control Liberalization and Stock Market Development," World Development, Elsevier, vol. 26(7), pages 1169-1183, July.
    35. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    36. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102, Elsevier.
    37. Stanley Fischer, 2003. "Globalization and Its Challenges," American Economic Review, American Economic Association, vol. 93(2), pages 1-30, May.
    38. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, April.
    39. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    40. Caballero, Ricardo J, 1994. "Small Sample Bias and Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 52-58, February.
    41. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
    42. Chari, Anusha & Gupta, Nandini, 2008. "Incumbents and protectionism: The political economy of foreign entry liberalization," Journal of Financial Economics, Elsevier, vol. 88(3), pages 633-656, June.
    43. Brahima Coulibaly & Jonathan N. Millar, 2007. "Estimating the long-run user cost elasticity for a small open economy: evidence using data from South Africa," Finance and Economics Discussion Series 2007-25, Board of Governors of the Federal Reserve System (U.S.).
    44. DeLong J. Bradford, 2004. "Should We Still Support Untrammelled International Capital Mobility? Or are Capital Controls Less Evil than We Once Believed?," The Economists' Voice, De Gruyter, vol. 1(1), pages 1-9, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bonfiglioli, Alessandra, 2008. "Financial integration, productivity and capital accumulation," Journal of International Economics, Elsevier, vol. 76(2), pages 337-355, December.
    2. Philip Arestis & Asena Caner, 2010. "Capital account liberalisation and poverty: how close is the link?," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(2), pages 295-323, March.
    3. Ayhan Kose, M. & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does openness to international financial flows raise productivity growth?," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 554-580, June.
    4. 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.
    5. 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.
    6. Joel Peress & jim goldman, 2016. "Firm Innovation and Financial Analysis: How Do They Interact?," 2016 Meeting Papers 531, Society for Economic Dynamics.
    7. 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.
    8. Chad P. Bown & Daniel Lederman & Samuel Pienknagura & Raymond Robertson, 2017. "Better Neighbors," World Bank Publications - Books, The World Bank Group, number 25736, December.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    2. Anusha Chari & Peter Blair Henry & Diego Sasson, 2012. "Capital Market Integration and Wages," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 102-132, April.
    3. Peter Henry & Diego Sasson, "undated". "Capital Market Integration and Wages," Discussion Papers 08-028, Stanford Institute for Economic Policy Research.
    4. Henry, Peter Blair & Sasson, Diego, 2009. "Capital Market Integration and Wages," Research Papers 2019, Stanford University, Graduate School of Business.
    5. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    6. Chari, Anusha & Blair Henry, Peter, 2008. "Firm-specific information and the efficiency of investment," Journal of Financial Economics, Elsevier, vol. 87(3), pages 636-655, March.
    7. Anusha Chari & Peter Blair Henry, 2004. "Is the Invisible Hand Discerning or Indiscriminate? Investment and Stock Prices in the Aftermath of Capital Account Liberalizations," NBER Working Papers 10318, National Bureau of Economic Research, Inc.
    8. 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.
    9. William R. Cline, 2010. "Financial Globalization, Economic Growth, and the Crisis of 2007-09," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 499, October.
    10. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2011. "Financial Openness and Productivity," World Development, Elsevier, vol. 39(1), pages 1-19, January.
    11. Christiansen, Lone & Schindler, Martin & Tressel, Thierry, 2013. "Growth and structural reforms: A new assessment," Journal of International Economics, Elsevier, vol. 89(2), pages 347-356.
    12. Kose, M. Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2010. "Financial Globalization and Economic Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4283-4359, Elsevier.
    13. Frederic S. Mishkin, 2007. "Is Financial Globalization Beneficial?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 259-294, March.
    14. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    15. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," NBER Working Papers 14691, National Bureau of Economic Research, Inc.
    16. Guven, Cahit, 2016. "Financial integration: The role of tradable and non-tradable goods," Economic Modelling, Elsevier, vol. 53(C), pages 345-353.
    17. Alfaro, Laura & Hammel, Eliza, 2007. "Capital flows and capital goods," Journal of International Economics, Elsevier, vol. 72(1), pages 128-150, May.
    18. Chari, Anusha & Henry, Peter Blair & Moussa, Racha, 2022. "Do finite horizons matter? The welfare consequences of capital account liberalization," Economic Modelling, Elsevier, vol. 114(C).
    19. Moshirian, Fariborz & Tian, Xuan & Zhang, Bohui & Zhang, Wenrui, 2021. "Stock market liberalization and innovation," Journal of Financial Economics, Elsevier, vol. 139(3), pages 985-1014.
    20. Simplice A. Asongu & Joseph Nnanna & Vanessa S. Tchamyou, 2020. "The comparative African regional economics of globalization in financial allocation efficiency: the pre-crisis era revisited," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-41, December.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13880. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.