Working Paper: NBER ID: w15204
Authors: Anusha Chari; Peter Blair Henry; Diego Sasson
Abstract: 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.
Keywords: capital market integration; wages; emerging economies; liberalization; labor productivity
JEL Codes: E2; F15; F3; F41; F43; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital market liberalization (F30) | Wage growth (J31) |
| Capital market liberalization (F30) | Real wage growth in manufacturing sector (J39) |
| Real wage growth in manufacturing sector (J39) | Additional compensation per worker (J33) |
| Capital market liberalization (F30) | Labor productivity growth (O49) |
| Labor productivity growth (O49) | Unit labor costs (J39) |