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Foreign direct investment and wages in domestic firms in Ireland: Productivity spillovers versus labour-market crowding out

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Author Info
FRANK BARRY
HOLGER GÖRG
ERIC STROBL

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Abstract

There is a large literature on the positive spillovers frequently thought to be associated with inward foreign direct investment. Aitken et al. (1996) identify several cases, however, where inward FDI appears to have reduced wages in domestic firms. They suggest that this might arise either because foreign firms increase the degree of product-market competition that domestic firms face, or because they poach the best workers from domestic firms. We concentrate on the second effect, arguing that the first is unlikely to arise in the Irish case to which our data pertain. In a theoretical section we show that the labour-market poaching effect cannot generate the results postulated if labour markets are competitive and production functions are of the Cobb-Douglas variety, but that it can arise if production functions display higher elasticities of substitution. In an empirical section based on a sample of larger Irish firms we show that, consistent with our theoretical model, foreign presence has different effects on wages and productivity in domestic exporting and non-exporting establishments.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 12 (2005)
Issue (Month): 1 (February)
Pages: 67-84
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Handle: RePEc:taf:ijecbs:v:12:y:2005:i:1:p:67-84

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Related research
Keywords: FDI; Spillovers; Labour Market; Crowding Out; JEL Classifications: F23; J23; J31;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September. [Downloadable!] (restricted)
  3. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May. [Downloadable!] (restricted)
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  4. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November. [Downloadable!] (restricted)
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  5. Girma, Sourafel & Greenaway, David & Wakelin, Katharine, 2001. "Who Benefits from Foreign Direct Investment in the UK?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(2), pages 119-33, May. [Downloadable!] (restricted)
  6. Gorg, Holger & Strobl, Eric, 2001. "Multinational Companies and Productivity Spillovers: A Meta-analysis," Economic Journal, Royal Economic Society, vol. 111(475), pages F723-39, November. [Downloadable!] (restricted)
  7. Holger G–rg & Eric Strobl, 2003. "Multinational Companies, Technology Spillovers and Plant Survival," Scandinavian Journal of Economics, Blackwell Publishing, vol. 105(4), pages 581-595, December. [Downloadable!] (restricted)
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  8. Frances Ruane & Ali Ugur, 2002. "Foreign Direct Investment And Productivity Spillovers In The Irish Manufacturing Industry: Evidence From Firm Level Panel Data," Trinity Economics Papers 20026, Trinity College Dublin, Department of Economics. [Downloadable!]
  9. Robert E. Lipsey & Fredrik Sjoholm, 2001. "Foreign Direct Investment and Wages in Indonesian Manufacturing," NBER Working Papers 8299, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Holger Görg & Eric Strobl, 2003. ""Footloose" Multinationals?," Manchester School, University of Manchester, vol. 71(1), pages 1-19, January. [Downloadable!] (restricted)
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  11. Kevin Denny & Machin, S, 1991. "The role of profitability and industrial wages in firm level wage determination," Fiscal Studies, Institute for Fiscal Studies, vol. 12(2), pages 34-45, May.
  12. Paolo Figini & Holger Görg, 1998. "Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland," Economics Technical Papers 9816, Trinity College Dublin, Department of Economics. [Downloadable!]
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  13. Frank Barry, 2002. "A Note on Transfer Pricing and the R&D Intensity of Irish Manufacturing," Working Papers 200230, School Of Economics, University College Dublin. [Downloadable!]
  14. Görg, Holger & Strobl, Eric, 2002. "Multinational Companies and Indigenous Development: An Empirical Analysis," CEPR Discussion Papers 3325, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Frank Barry & Colm Kearney, 2003. "A Portfolio Analysis of Industrial Structure," Working Papers 200309, School Of Economics, University College Dublin. [Downloadable!]
  16. Brian J. Aitken & Ann E. Harrison, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June. [Downloadable!] (restricted)
  17. Blomstrom, Magnus & Sjoholm, Fredrik, 1999. "Technology transfer and spillovers: Does local participation with multinationals matter?1," European Economic Review, Elsevier, vol. 43(4-6), pages 915-923, April. [Downloadable!] (restricted)
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  18. Callan, Tim & FitzGerald, John, 1989. "Price Determination in Ireland: Effects of Changes in Exchange Rates and Exchange Rate Regimes," Papers ME179, Economic and Social Research Institute (ESRI).
  19. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December. [Downloadable!] (restricted)
  20. Salvador Barrios, . "Foreign Direct Investment and Productivity Spillovers," Working Papers 2000-19, FEDEA. [Downloadable!]
  21. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Seguino, Stephanie, 2006. "The Road to Gender Equality: Global Trends and the Way Forward," MPRA Paper 6510, University Library of Munich, Germany. [Downloadable!]
  2. Jože P. Damijan & Mark Knell, 2005. "How Important Is Trade and Foreign Ownership in Closing the Technology Gap? Evidence from Estonia and Slovenia," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 271-295, July. [Downloadable!] (restricted)
  3. Della Temenggung, 2007. "Productivity Spillovers from Foreign Direct Investment: Indonesian Manufacturing Industry’s Experience 1975-2000," DEGIT Conference Papers c012_048, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  4. Stephanie Seguino, 2005. "Gender Inequality in a Globalizing World," Industrial Organization 0507005, EconWPA. [Downloadable!]
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  5. Karpaty, Patrik & Lundberg, Lars, 2004. "Foreign Direct Investment and Productivity Spillovers in Swedish Manufacturing," Working Paper Series 194, Trade Union Institute for Economic Research. [Downloadable!]
  6. Stephanie Seguino, 2005. "Is More Mobility Good? Firm Mobility and the Low Wage-Low Productivity Trap," International Trade 0505008, EconWPA. [Downloadable!]
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  7. Rashmi Banga, 2005. "Liberalisation and wage inequality in India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 156, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
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  8. Cuyvers L. & Plasmans J. & Soeng R. & Van den Bulcke D., 2008. "Productivity Spillovers from Foreign Direct Investment in the Cambodian Manufacturing Sector: Evidence from Establishment-Level Data," Working Papers 2008004, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
  9. Tulus Tambunnan, 2007. "Trade and Investment Liberalization Effects on SME Development: A Literature Review and a Case Study of Indonesia," Working Papers 4207, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
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