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Racing to the bottom for FDI? The changing role of labor costs and infrastructure

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  • Andrea Amaro
  • William Miles

    (Wichita State University, USA)

Abstract

The opening of low wage nations to FDI has created much more competition for investment since the beginning of the 1990s. Observers in middle-income developing countries such as Brazil, Malaysia and Mexico, which have benefited from FDI, express fears of losing to new, lower wage destinations. Are such countries facing a dilemma, in which the very wage growth provided by FDI must be reversed to continue attracting investment? Or, are there alternative means of enticing multinational corporations, in particular physical infrastructure, which avoid a "race to the bottom" in terms of living standards and in fact aid in development goals? Empirical results indicate that while wages have become a more important determinant of FDI between the 1980s and 1990s, so has infrastructure quality.

Suggested Citation

  • Andrea Amaro & William Miles, 2006. "Racing to the bottom for FDI? The changing role of labor costs and infrastructure," Journal of Developing Areas, Tennessee State University, College of Business, vol. 40(1), pages 1-14, September.
    • Handle: RePEc:jda:journl:vol.40:year:2006:issue1:pp:1-14
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    References listed on IDEAS

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    Cited by:

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    2. Fosu, Prince, 2016. "Infrastructure and Foreign Direct Investment Inflows: Evidence from Ghana," MPRA Paper 100375, University Library of Munich, Germany, revised 13 May 2020.

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    More about this item

    Keywords

    Capital Flows; Developing Countries; Foreign Direct Investment; Infrastructure;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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