Capital Market Integration and Wages
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.
Henry gratefully acknowledges financial support from the John A. and Cynthia Fry Gunn Faculty Fellowship, the Stanford Institute for economic Policy Research and the Stanford Center for International Development. We thank Sandile Hlatshwayo for excellent research assistance. We also thank Olivier Blanchard, Steve Buser, Brahima Coulibaly, Jonah Gelbach, Pierre-Olivier Gourinchas, Avner Greif, Nir Jaimovich, Pete Klenow, Anjini Kochar, John Pencavel, Paul Romer, Robert Solow, Ewart Thomas and seminar participants at Berkeley, Brookings, the Chicago Fed, Claremont McKenna, the IMF, MIT, NIPFP-DEA, the Reserve Bank of India, and Stanford for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
- Real wage growth averages between 5.1 and 8.6 percent more than its long-term average in the years immediately after capital market...
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