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Wage rate, regional trade bloc and Location of Foreign Direct Investment Decisions

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  • Onwuka Kevin Odulukwe

Abstract

The objective of this paper is to examine the impact of wage rate on FDI location in South East Asia in the presence of trading systems (regional and multilateral trading systems) drawing example from panel data of five ASEAN countries (Malaysia, the Philippines, Indonesia, Singapore and Thailand). The analysis is built on the extended endogenous growth model due to work of Borensztein et al. (1998) and utilizes the fixed effects estimation technique to estimate the parameters of the model. Three measures were constructed for each trading system and used as regressors. The results show that the decisions to locate FDI in ASEAN countries are motivated by low wage rate or labour costs in the presence of both regional and multilateral trading systems. This implies that as the MNEs (Multinational Enterprises) aim at cost minimisation whether the host country is following multilateral or regional trading system makes no difference. Too for the host country to remain competitive in the global market and attract more MNEs, it has to compromise its labour standard. Or alternatively seek high-tech FDI that requires high skilled labour force.

Suggested Citation

  • Onwuka Kevin Odulukwe, 2011. "Wage rate, regional trade bloc and Location of Foreign Direct Investment Decisions," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 134-146.
    • Handle: RePEc:asi:aeafrj:v:1:y:2011:i:3:p:134-146:id:719
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    Keywords

    Wage rate; FDI; Trading system; ASEAN;
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