Openness and factor shares: Is globalization always bad for labor?

• 成果类型: Article
• 署名作者: Leblebicioglu, Asli; Weinberger, Ariel
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY); George Washington University; George Washington University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2020.103406
• 发表日期: 2021
• 关键词: labor share; trade liberalization; Foreign capital; openness

摘要

This paper studies the response of factor shares to the liberalization episode in India during the 1990's, which is characterized by large and unexpected changes in trade and foreign investment policies. We find that access to foreign capital caused an increase in the labor-to-capital relative factor share. As lower tariffs on capital goods and FDI liberalization reduce the cost of foreign capital, firms increase their use of foreign capital relative to domestic capital. This shift in the composition of the capital stock improves capital's productivity per unit of expenditure, which in turn raises wages and the relative labor share. Consistent with this mechanism, firm TFP and the share of firms that import capital both increase in industries with the largest capital cost reductions, while the relatively larger rise of labor payments is observed predominantly for new capital importers. We identify domestic deregulation policies and reallocation to capital-intensive firms as potential determinants of the observed decline in the aggregate labor share. Finally, in a model where domestic and foreign capital are imperfect substitutes, we quantify the effect of a reduction in capital tariffs, and find that it explains a large part of the estimated increase in the labor share found in the reduced form analysis. (C) 2020 Elsevier B.V. All rights reserved.