Capital Account Liberalization, Real Wages, and Productivity

Peter Blair Henry · Diego L. Sasson

38 citations0/0 files storedNational Bureau of Economic Research

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Global trade and economics Global Financial Crisis and Policies Economic Growth and Productivity

Abstract

For three years after developing countries open their stock markets 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 that do not liberalize. 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 856 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.

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References

1995Economic Reform and the Process of Global Integration 1996Stock Markets, Banks, and Economic Growth 2003The great reversals: the politics of financial development in the twentieth century 1999Financial Development and Economic Growth: Views and Agenda 1999Stock Markets, Banks, and Economic Growth 2006Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2000Foreign Speculators and Emerging Equity Markets 1990Equipment Investment and Economic Growth

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