Capital market integration and gender inequality

• Published date: 01 August 2019
• Date: 01 August 2019
• DOI: http://doi.org/10.1111/rode.12593
• Author: Mizuki Komura,Hikaru Ogawa

Rev Dev Econ. 2019;23:1387–1413. wileyonlinelibrary.com/journal/rode

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INTRODUCTION

Globalization affects gender empowerment and fertility outcomes all over the world through many

labor-market-related factors. The emergence of a new globalized labor market directly changes the

working styles of mothers and fathers as well as their fertility decisions (Rees & Riezman, 2012).

Social remittances by immigrants to their home countries are also a direct effect of the integration

of the labor market attributed to globalization. For example, if the women are relatively empowered

and family size is relatively small in the destination country, the immigrants may bring its culture or

social norms back to their home countries, and spread them in the communities there (Fargues, 2011;

Beine, Docquier, & Schiff, 2013, Ferrant & Tuccio, 2015, and Bertoli & Marchetta, 2015). Moreover,

globalization characterized by market integration in production factors and final goods also causes

indirect effects. For instance, the capital inflow accompanied by capital market openings will benefit

workers who are complementary to capital in production, while it may harm workers who have a less

DOI: 10.1111/rode.12593

REGULAR ARTICLE

Capital market integration and gender inequality

MizukiKomura1

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HikaruOgawa2

1Faculty of Economics,Musashi University

and IZA, Tokyo, Japan

2Graduate School of Economics

and Graduate School of Public

Policy,University of Tokyo, Tokyo, Japan

Correspondence

Hikaru Ogawa, Graduate School of

Economics and Graduate School of Public

Policy, University of Tokyo, 7-3-1 Hongo

Bunkyo, Tokyo, 113-0033, Japan.

Email: ogawa@e.u-tokyo.ac.jp

Abstract

This study explores the effects of globalization on gender

inequality. Specifically, we describe how, in terms of capi-

tal market integration, globalization alters the gender gap in

wage rates through changes in labor demand for capital-in-

tensive sectors. Consequently, via changes in the bargaining

positions of men and women, globalization leads to oppo-

site effects on the couple's labor supply and fertility deci-

sions in capital-importing and capital-exporting countries.

Moreover, by considering the properties of the industrial

structures of capital-importing and capital-exporting coun-

tries, we show that globalization induces empirically

observed declines in fertility rates throughout the world.

KEYWORDS

capital market integration, bargaining power, gender inequality

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complementary relationship with capital by widening the wage gap with the former. If either female

or male workers tend to be complementary to capital in production, the capital flows affect outcomes

such as the wages and employment of men and women in the labor market, leading to changes in gen-

der relationships and household decisions.

Since the influential work by Galor and Weil (1996), many studies have explored the role of capi-

tal accumulation in gender empowerment and household production, focusing on fertility decisions.1

These studies consider the situation in which men and women are affected asymmetrically by capital

accumulation in the process of economic development. If we assume an economy where female labor

is relatively complementary to capital, capital accumulation leads to a relatively higher female wage.

This results in a higher opportunity cost of having children, followed by a decline in fertility.

Analyzing an increase in the level of capital from the viewpoint of an economy composed

of multiple countries, rather than of one country, allows us to shed new light on the relationship be-

tween change in capital stock and gender empowerment. The total capital in the world for a certain

period is fixed, implying that an increase in the capital of one country is possible only when the capital

elsewhere, that is, the rest of the world, is reduced. As such, the effects become more complicated. If

a country experiencing capital inflow enjoys higher female wage and lower fertility rate, the country

with capital outflow may experience the opposite: the capital outflow causes the drop in female wage

rates, leading to a rise in fertility rate. In this case, the effects of changes in the level of capital in each

country as well as the economy as a whole are not easy to determine. This study tries to answer this

question by exploring the effects of changes in capital levels on the said aspects.

For our purposes, we develop a model with three distinct features. First, to examine capital mo-

bility, we utilize a model of capital tax competition originally presented by Zodrow and Mieszkowski

(1986) and Wilson (1986). The model analyzes the effects of market integration of an economy con-

sisting of multiple countries (e.g. EU integration). It succeeded in analyzing the impacts of global-

ization on each country. The theory predicts that globalization, in terms of capital market integration,

allows countries with higher returns from investment to attract capital from all over the world, result-

ing in asymmetric effects on individuals with heterogeneities such as the level of skills, employment

status, and capital endowments (Gerber & Hewitt, 1987; Lai, 2010; Ogawa, Sato, & Tamai, 2016).

However, these studies define workers and households only as rational “individuals”, and they are

often assumed to be homogenous within the household.

Second, we refer to heterogeneity among workers: male and female workers constitute different

production labor inputs in accordance with the degree of complementarity to capital. Galor and Weil

(1996), Abio, Mahieu, and Patxot (2004), and Sauré and Zoabi (2009), among others, assumed that

women are complementary to physical capital. However, the degree of complementarity of workers

and the main industry of the country vary, especially in accordance with the degree of economic de-

velopment. So far, the manufacturing and services sectors represent the main industries in developed

countries, while developing countries are more likely to rely on manufacturing and agriculture rather

than the service industry. Moreover, a large portion of female employment in developing countries

is combined with machines owing to the automation of production processes and lower wages for

women than for men (Juhn, Ujhelyi, & Villegas-Sanchez, 2014), while in developed countries women

tend to engage in the service sector and men are the main workers in the manufacturing industries.2

Thus, new factories built using mobile capital do not necessarily create employment for workers of

a specific gender. Therefore, it is worth investigating this issue without characterizing both countries

with the same production technology.

The growing literature on globalization and women's empowerment continues to study this issue,

but the results as to which gender is complementary to physical capital seem inconclusive. For exam-

ple, opposing the view that female labor alone is likely to be affected by globalization, Fontana and