Is There Any Linkage between Sectoral Capital-labour Ratios, Total Factor Productivity, and Wages?

This paper investigates the relationship between sectoral capital-labor ratios, total factor productivity (TFP) and wages based on the contemporary Balassa-Samuelson model. To proceed, first, we identify a tradable and nontradable sector using an average of export to value added ratio for a group of...

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Bibliographic Details
Published in:Emerging markets finance & trade 2020-12, Vol.56 (15), p.3662-3677
Main Authors: Rath, Badri Narayan, Jangam, Bhushan Praveen
Format: Article
Language:English
Subjects:
Art markets
capital-labor ratios
cross-sectional dependence
Developing countries
LDCs
Ratios
Total factor productivity
wages
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Summary:This paper investigates the relationship between sectoral capital-labor ratios, total factor productivity (TFP) and wages based on the contemporary Balassa-Samuelson model. To proceed, first, we identify a tradable and nontradable sector using an average of export to value added ratio for a group of developed and developing countries over the period 2001 to 2014. After accounting for cross-sectional dependence in the data, we find strong evidence that TFP of the tradable sector and wages significantly determines sectoral capital-labor ratios in both developed and developing countries. The long-run elasticities show that improvement in TFP declines the capital-labor ratios, whereas wages increase the capital-labor ratios in both tradable and nontradable sectors across developed and developing countries.
ISSN:1540-496X
1558-0938
DOI:10.1080/1540496X.2020.1784140