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Capital Market Integration and Wages

Author

Listed:
  • Peter Henry

    (Graduate School of Business)

  • Diego Sasson

    (Credit Suisse)

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.

Suggested Citation

  • Peter Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," Discussion Papers 08-028, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:08-028
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    File URL: http://www-siepr.stanford.edu/repec/sip/08-028.pdf
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    References listed on IDEAS

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    Cited by:

    1. repec:zbw:rwirep:0298 is not listed on IDEAS
    2. an de Meulen, Philipp, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 298, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Philipp an de Meulen, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 0298, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    More about this item

    Keywords

    Developing countries; Wages; Labor Productivity; Captial Market;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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