Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/148936 
Year of Publication: 
2017
Series/Report no.: 
Discussion Papers No. 219
Publisher: 
Georg-August-Universität Göttingen, Courant Research Centre - Poverty, Equity and Growth (CRC-PEG), Göttingen
Abstract: 
In this paper, we investigate how de facto financial globalization has influenced the labor share in developing countries. Our main argument is the need to distinguish between different types of capital in this context, as different forms of foreign investment have different fixed costs and impacts on the host countries' production process and vary concerning their bargaining power vis-à-vis labor. Assuming an aggregate elasticity of substitution between capital and labor would thus be misleading. Our econometric analysis of the impact of foreign direct vs. portfolio investment in a sample of about 40 developing and transition countries after 1992 supports this claim. Using different panel data techniques to address potential endogeneity problems, we find that FDI has a positive effect on the labor share in developing countries, while the impact of portfolio investment is significantly smaller, and potentially negative. Our results also highlight that de facto foreign investment cannot explain the decline of the labor share in developing countries over the investigated period.
Subjects: 
Labor Share
Globalization
Income Distribution
International Capital Flows
FDI
Wage Bargaining
JEL: 
C23
E25
F21
O15
Document Type: 
Working Paper

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