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FDI and the Labour Market: A Review of the Evidence and Policy Implications

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  • Driffield, Nigel
  • Taylor, Karl

Abstract

This paper presents a series of results concerning the labour-market impact of inward foreign direct investment (FDI) in the UK. The paper demonstrates that one of the crucial impacts of FDI is to increase wage inequality and the use of relatively more skilled labour in the domestic firms. This result is found to be a combination of two effects. First, the entry by a multinational enterprise (MNE) increases the demand for skilled workers in an industry or region, thus increasing wage inequality. Second, technology spillovers occur from foreign to domestic firms. As a result of these spillovers, relative demand for skilled workers increases in the domestic firms, further contributing to aggregate wage inequality and skill upgrading. The paper also considers how FDI impacts upon skill shares by productivity differentials between foreign and domestic firms. Finally, the policy implications of this are discussed, from the perspective of regional development, and the likely effectiveness of attracting FDI to reduce structural unemployment. Copyright 2000 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 16 (2000)
Issue (Month): 3 (Autumn)
Pages: 90-103

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Handle: RePEc:oup:oxford:v:16:y:2000:i:3:p:90-103

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Cited by:
  1. Nigel Driffield & Karl Taylor, . "Are Foreign Firms More Technologically Intensive? UK Establishment Evidence From the ARD," Discussion Papers in Public Sector Economics 01/9, Department of Economics, University of Leicester.
  2. Jim Malley & Apostolis Philippopoulos & Ulrich Woitek, 2007. "To React or Not? Fiscal Policy, Volatility and Welfare in the EU-3," CESifo Working Paper Series 1919, CESifo Group Munich.
  3. David Bailey & Nigel Driffield, 2007. "Industrial Policy, FDI and Employment: Still ‘Missing a Strategy’," Journal of Industry, Competition and Trade, Springer, Springer, vol. 7(3), pages 189-211, December.
  4. Axel Dreher & Noel Gaston, 2005. "Has globalisation really had no effect on unions?," KOF Working papers 05-110, KOF Swiss Economic Institute, ETH Zurich.
  5. Musteen, Martina & Rhyne, Lawrence & Zheng, Congcong, 2013. "Asset or constraint: Corporate reputation and MNCs’ involvement in the least developed countries," Journal of World Business, Elsevier, vol. 48(3), pages 321-328.
  6. Thirunaukarasu Subramaniam & Ahmad Zubaidi Baharumshah, 2011. "Unemployment And Speed Of Adjustment In Asean-3 Economies: A Cointegration Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(03), pages 327-347.
  7. Marko Ogorevc & Sonja Slander, 2011. "Shareholders and wage determination – bringing in “space”," ERSA conference papers ersa10p1279, European Regional Science Association.
  8. Pradhan, Jaya Prakash, 2005. "How Do Trade, Foreign Investment, and Technology Affect Employment Patterns in Organized Indian Manufacturing?," MPRA Paper 19010, University Library of Munich, Germany.
  9. Q Li & S Girma, . "Exporting, FDI, and Labour Demand Adjustment: Evidence from the UK Manufacturing," Working Papers, Business School - Economics, University of Glasgow 2006_18, Business School - Economics, University of Glasgow.
  10. Zoltan J. Acs & David J. Brooksbank & Colm O'Gorman & David G. Pickernell & Siri Terjesen, 2007. "The Knowledge Spillover Theory of Entrepreneurship and Foreign Direct Investment," Jena Economic Research Papers 2007-059, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  11. Nigel Driffield & James Love & Karl Taylor, 2008. "Productivity and Labour Demand Effects of Inward and Outward FDI on UK Industry," Working Papers 2008001, The University of Sheffield, Department of Economics, revised Jan 2008.
  12. Ayse Kaya & James T. Walker, 2009. "Individual Attitudes towards the Impact of Multinational Enterprises on Local Businesses," Economics & Management Discussion Papers, Henley Business School, Reading University em-dp2009-02, Henley Business School, Reading University.
  13. Bala Ramasamy & Matthew Yeung, 2010. "A causality analysis of the FDI-wages-productivity nexus in China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 3(1), pages 5-23, February.
  14. Enrico Marelli & Laura Resmini & Marcello Signorelli, 2014. "The Effects Of Inward Fdi On Regional Employment In Europe," Romanian Journal of Regional Science, Romanian Regional Science Association, Romanian Regional Science Association, vol. 8(1), pages 1-23, JUNE.
  15. Rashmi Banga, 2007. "Liberalisation and Wage Inequality In India," Working Papers id:805, eSocialSciences.

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