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Capital Market Integration and Wages

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  • 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.

Suggested Citation

  • Anusha Chari & Peter Blair Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," NBER Working Papers 15204, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15204
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    2. Carpenter, Jennifer N. & Lu, Fangzhou & Whitelaw, Robert F., 2018. "The real value of China’s stock market," BOFIT Discussion Papers 2/2018, Bank of Finland, Institute for Economies in Transition.
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    4. Maya Eden, 2019. "International Liquidity Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 147-159, January.
    5. 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.
    6. Carpenter, Jennifer N. & Lu, Fangzhou & Whitelaw, Robert F., 2018. "The real value of China's stock market," BOFIT Discussion Papers 2/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    7. Lucas Argentieri Mariani & Silvia Marchesi, 2023. "International Lending Channel, Bank Heterogeneity and Capital Inflows (Mis)Allocation," Working Papers 523, University of Milano-Bicocca, Department of Economics.
    8. repec:zbw:bofitp:002 is not listed on IDEAS
    9. Bank for International Settlements, 2021. "Changing patterns of capital flows," CGFS Papers, Bank for International Settlements, number 66.
    10. Carpenter, Jennifer N. & Lu, Fangzhou & Whitelaw, Robert F., 2021. "The real value of China’s stock market," Journal of Financial Economics, Elsevier, vol. 139(3), pages 679-696.
    11. Weiping Li & Saite Lu, 2024. "Assessing Structural Transformation and the Potential Impacts of Belt and Road Initiative Projects in Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(3), pages 548-570, June.
    12. 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.
    13. Bachas,Pierre Jean & Fisher-Post,Matthew & Jensen,Anders & Zucman,Gabriel, 2022. "Globalization and Factor Income Taxation," Policy Research Working Paper Series 9973, The World Bank.
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    15. Chari, Anusha & Henry, Peter Blair & Moussa, Racha, 2022. "Do finite horizons matter? The welfare consequences of capital account liberalization," Economic Modelling, Elsevier, vol. 114(C).
    16. Han, Minsoo, 2022. "International financial integration and total factor productivity losses from underdeveloped domestic financial markets," Economics Letters, Elsevier, vol. 212(C).
    17. Wang, Xun, 2022. "Financial liberalization and the investment-cash flow sensitivity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    18. Haraguchi, Nobuya & Martorano, Bruno & Sanfilippo, Marco, 2019. "What factors drive successful industrialization? Evidence and implications for developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 49(C), pages 266-276.
    19. Yanyan Lin & Xipei Hou, 2024. "Stock market liberalisation and acquisition outcomes: Evidence from a natural experiment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3344-3371, July.
    20. Jennifer N. Carpenter & Fangzhou Lu & Robert F. Whitelaw, 2015. "The Real Value of China's Stock Market," NBER Working Papers 20957, National Bureau of Economic Research, Inc.
    21. Binder, Michael & Cheung, Ying Lun & Georgiadis, Georgios & Sharma, Sunil, 2024. "Institutions, international financial integration, and output growth," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 450-472.
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F15 - International Economics - - Trade - - - Economic Integration
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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