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The Impact of Financial Integration on the Labor Share of Income: An Empirical Evidence from a Panel Dataset

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Abstract

This paper contributes to the literature on the impact of financial liberalization by including the earnings of self-employed while investigating the core determinants and mechanisms driving the income share going to labor during financial integration. The question of the precise impact of liberalization on the share of the self-employed has received less attention in the literature. The author also uses both measures of capital account openness: de jure and de facto indicators. The empirical work is applied for a panel dataset of 30 countries during the period of 1970–2013. Despite using different measurement methods of financial openness, the results from all specifications support the hypothesis that financial integration leads to a decline in the labor share of income for the all countries sample.

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Notes

  1. The OECD classifies the employment into three categories: paid employment, unpaid employment and self-employment.

  2. There are 15 developing and 15 developed countries in the sample.

  3. Self-employment’s definition by OECD.

  4. Other de facto (or outcome based) measures: the uncovered or real interest rate parity by Cheung et al. (2003); international arbitrage pricing model or capital asset pricing model by De Gregorio (1998); the size of gross capital flows as the degree of capital account openness by IMF (2001).

  5. For example, in Vietnam, labors in agriculture account for almost 44 percent of total workforces as reported by Vietnamese Labor Ministry Report in 2015.

  6. Daniel, H: “Robust Standard Errors for Panel Regressions with Cross-Sectional Dependence”, page 4.

  7. For example, in the study of Javadev (2007), the estimation result shows that one percentage point increase in trade openness is associated to a decrease of 2 percentage points in the labor share of income.

  8. See Table 10 (Appendix): There are 30 countries in the whole sample including 15 developing countries and 15 developed countries.

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Authors and Affiliations

  1. Department of Economics, Colorado State University, Fort Collins, CO, USA

    Huong Le

  2. School of International Business and Economics, Foreign Trade University, Hanoi City, Vietnam

    Huong Le

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Appendix

Appendix

See Table 10.

Table 10 Country listings
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Le, H. The Impact of Financial Integration on the Labor Share of Income: An Empirical Evidence from a Panel Dataset. Ind. J. Labour Econ. 63, 597–627 (2020). https://doi.org/10.1007/s41027-020-00234-5

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