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Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?

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  • Dirk Willem te Velde

Abstract

Do firms owned by foreigners pay higher wages than locally owned firms for apparently equivalent workers? Do such benefits accrue to all or only certain types of workers? This paper uses data on individual wages in manufacturing industry for five African countries in the early 1990s to address these questions. We present two main findings. First, foreign ownership is associated with a 20--40% increase in individual wages (conditional on age, tenure and education) on average. This is halved to 8--23% if we take into account the fact that foreign-owned firms are larger and locate in high-wage sectors and regions. Secondly, there is a tendency in some countries for more skilled workers (using occupation and education categories) to benefit more from foreign ownership than less skilled workers and this conclusion holds after accounting for the size distribution of foreign firms. We discuss, but cannot directly test, the plausibility of two explanations for these findings: (i) foreign-owned firms employ technologies that are more skill-biased than technologies in local firms and (ii) skilled workers in foreign firms are more effective in rent-sharing than other workers. We contend that these explanations may not be mutually exclusive and, hence, cannot be empirically distinguished. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.

Volume (Year): 12 (2003)
Issue (Month): 1 (March)
Pages: 41-73

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Handle: RePEc:oup:jafrec:v:12:y:2003:i:1:p:41-73

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Cited by:
  1. Wagle, Udaya R., 2007. "Are Economic Liberalization and Equality Compatible? Evidence from South Asia," World Development, Elsevier, vol. 35(11), pages 1836-1857, November.
  2. Philipp Harms & Pierre-Guillaume Méon, 2011. "An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries," Working Papers 11.10, Swiss National Bank, Study Center Gerzensee.
  3. Hartmut Egger & Udo Kreickemeier, 2013. "Why Foreign Ownership May Be Good For You," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 693-716, 05.
  4. Frost, Jon, 2008. "Returns to Qualification in Informal Employment: A Study of Urban Youth in Egypt," MPRA Paper 12599, University Library of Munich, Germany.
  5. Philipp Harms & Philipp Meulen, 2012. "The demographics of expropriation risk," Journal of Population Economics, Springer, vol. 25(3), pages 809-832, July.
  6. Maria Bas, 2012. "Foreign ownership wage premium: Does financial health matter?," Working Papers 2012-24, CEPII research center.
  7. Martins, Pedro S., 2004. "Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators," IZA Discussion Papers 1388, Institute for the Study of Labor (IZA).
  8. Philipp an de Meulen, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 0298, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  9. Léonce Ndikumana & Sher Verick, 2007. "The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment," UMASS Amherst Economics Working Papers 2007-13, University of Massachusetts Amherst, Department of Economics.
  10. Elisa Giuliani & Chiara Macchi, 2013. "Multinational Corporations’ Economic And Human Rights Impacts On Developing Countries: A Review And Research Agenda," Discussion Papers 2013/158, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  11. Alexander Hijzen & Pedro S. Martins & Thorsten Schank & Richard Upward, . "Do foreign-owned firms provide better working conditions than their domestic counterparts? A comparative analysis," Discussion Papers 10/21, University of Nottingham, GEP.
  12. Léonce Ndikumana & Sher Verick, 2008. "The Linkages Between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa," Development Policy Review, Overseas Development Institute, vol. 26(6), pages 713-726, November.
  13. Oliver Morrissey, . "Investment Provisions in Regional Integration Agreements for Developing Countries," Discussion Papers 08/06, University of Nottingham, CREDIT.

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