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Foreign direct investment and wages: a cross-country analysis

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  • Munisamy Gopinath
  • Weiyan Chen

Abstract

While globalization has led to overall economic growth in a number of countries, questions abound on its distributional effects, especially on rising wage inequality across nations. The main objective of this study is to investigate empirically the effects of foreign direct investment (FDI) on wages in a cross-country setting. We investigate the general equilibrium propositions that capital inflows (outflows) increase (lower) wages in host (home) countries due to the change in relative factor endowments. We also explore whether capital inflows have differential impacts on skilled and unskilled wages in developing economies. Time-series data on 26 countries, 15 developed and 11 developing, are used to fit the labour share equation derived from a translog GNP function with net FDI stock as one of its arguments. Results confirm that capital movement brings about a cross-country convergence of wages. However, there is some evidence that inward FDI flows increase the wage gap between skilled and unskilled workers in developing countries.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0963819042000246619
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 13 (2004)
Issue (Month): 2 ()
Pages: 231-231

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Handle: RePEc:taf:jitecd:v:13:y:2004:i:2:p:231-231

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  1. Richard E. Baldwin & Philippe Martin, 1999. "Two Waves of Globalisation: Superficial Similarities, Fundamental Differences," NBER Working Papers 6904, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Paolo Figini & Holger Görg, 2007. "Does foreign direct investment affect wage inequality? An empirical investigation," The Institute for International Integration Studies Discussion Paper Series iiisdp186, IIIS.
  2. Sadullah Çelik & Ulkem Basdas, 2010. "How Does Globalization Affect Income Inequality? A Panel Data Analysis," International Advances in Economic Research, Springer, vol. 16(4), pages 358-370, November.
  3. Stephanie Seguino, 2005. "Is More Mobility Good? Firm Mobility and the Low Wage -- Low Productivity Trap," Economics Working Paper Archive wp_423, Levy Economics Institute, The.
  4. Cristina Procházková Ilinitchi, 2010. "Selected Migration Theories and their Importance on Drawing Migration Policies," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2010(6), pages 3-26.
  5. Bruno Decreuse & Paul Maarek, 2008. "FDI and the labor share in developing countries: A theory andsome evidence," Working Papers halshs-00333704, HAL.
  6. Masahiro Endoh, 2012. "Return Differentials of Foreign Investment among OECD Countries," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-016, Keio/Kyoto Joint Global COE Program.
  7. Stephanie Seguino, 2005. "Gender Inequality in a Globalizing World," Industrial Organization 0507005, EconWPA.
  8. Wu, JunJie & Gopinath, Munisamy, 2005. "How Do Location Decisions of Firms and Households Affect Economic Development in Rural America?," 2005 Annual meeting, July 24-27, Providence, RI 19229, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Seguino, Stephanie, 2006. "The Road to Gender Equality: Global Trends and the Way Forward," MPRA Paper 6510, University Library of Munich, Germany.
  10. Wu, Jyun-Yi & Hsu, Chih-Chiang, 2012. "Foreign direct investment and income inequality: Does the relationship vary with absorptive capacity?," Economic Modelling, Elsevier, vol. 29(6), pages 2183-2189.
  11. Valentina HARTARSKA & Henry THOMPSON, 2008. "Foreign Investment and Transition in Central/Eastern Europe along the Phase Curve," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 67-78.

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