Capital Market Integration and Wages

Anusha Chari, Peter Blair Henry, Diego Sasson

NBER Working Paper No. 15204
Issued in August 2009, Revised in December 2011
NBER Program(s):Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, International Trade and Investment Program, Labor Studies Program, Monetary Economics Program

For three years after the typical emerging economy 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 three. No such increase occurs in a control group of 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 487 US dollars--an increase equal to nearly one-fifth 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 does not drive up unit labor costs. Overall, the results suggest that trade in capital may have a larger impact on wages than trade in goods.

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Document Object Identifier (DOI): 10.3386/w15204

Published: Anusha Chari & Peter Blair Henry & Diego Sasson, 2012. "Capital Market Integration and Wages," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 102-32, April. citation courtesy of

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