STOCK MARKET DEVELOPMENT AND CROSS-COUNTRY DIFFERENCES IN RELATIVE PRICES
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Date
2010
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MIT PRESS
Abstract
We document a positive correlation between stock market capitalization and price levels (wages) within the group of countries with poorly developed stock markets and a negative correlation between these two variables within the group of countries with more developed stock markets. This paper argues that there is a causal relationship behind these correlations. Stock markets initially stimulate growth, pushing the demand for nontradables and increasing prices and wages. Stock markets also promote a shift toward more capital-intensive technologies in the tradable sector, increasing the migration of workers to services and eventually putting downward pressure on wages and prices.
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Keywords
FOREIGN-ASSETS, FINANCIAL DEVELOPMENT, POLITICAL-ECONOMY, EXTERNAL WEALTH, DETERMINANTS, LIABILITIES, INDUSTRIAL, NATIONS, TRADE