Globalization and Wages in Manufacturing in the Developing Countries: Evidence from Panel Cointegrations and Fully Modified OLS Regressions

This paper explores the long run relationship between wages in manufacturing and globalization using panel data from three developing countries for the period 1980-2001. Globalization is measured by foreign direct investment inflows and trade openness of a country. Recently developed techniques for testing panel cointegration hypotheses are applied to test the null of no cointegration. The panel cointegration test statistics indicate that wages in manufacturing are cointegrated with both measures of globalization. The results thus provide some evidence for the existence of a long run relationship between globalization and wages in manufacturing for this sample of countries. The panel Fully Modified OLS estimation method is then used to obtain the cointegrating coefficients and test their statistical significance. The panel group mean statistics show that the average slope coefficients between the two measures of globalization and wages are significantly different from zero. The null hypothesis that the individual coefficients are all zero is thus rejected.