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Foreign Direct Investment, Wage Inequality, and Skilled Labor Demand in EU Accession Countries

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Author Info

  • Giovanni S.F. Bruno

    (Università Bocconi,Istituto di Economia Politica)

  • Rosario Crinò

    (Università di Bergamo, Dipartimento di Scienze Economiche)

  • Anna M. Falzoni

    (CESPRI, Università Bocconi)

Abstract

During the 1990s Poland, Hungary and the Czech Republic have experienced rapid in-creases in wage inequality between skilled and unskilled workers and received the largest FDI inflow in Central and Eastern Europe. Using non-parametric and parametric approaches, this paper analyzes whether FDI has contributed to the raise in earning inequality and to the change in the skill composition of labor demand in the three countries. Our results suggest that, although FDI has not worsened wage inequality by favoring labor demand shifts, it has contributed to raising the skill-premium through the active role played by multinational firms in the transition-induced restructuring process which has resulted in a less compressed wage structure.

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File URL: ftp://ftp.unibocconi.it/pub/RePEc/cri/papers/WP154FalzoniBrunoCrino.pdf
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Bibliographic Info

Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 154.

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Length: 38 pages
Date of creation: Feb 2004
Date of revision: Feb 2004
Handle: RePEc:cri:cespri:wp154

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Related research

Keywords: Foreign direct investment; Labor demand; Wage inequality.;

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References

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  1. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
  2. Pinelopi K. Goldberg & Nina Pavcnik, 2004. "Trade, Inequality, and Poverty: What Do We Know? Evidence from Recent Trade Liberalization Episodes in Developing Countries," NBER Working Papers 10593, National Bureau of Economic Research, Inc.
  3. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
  4. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
  5. Peter Egger & Robert Stehrer, 2003. "International Outsourcing and the Skill--Specific Wage Bill in Eastern Europe," The World Economy, Wiley Blackwell, vol. 26(1), pages 61-72, January.
  6. Gordon H. Hanson & Ann Harrison, 1995. "Trade, Technology, and Wage Inequality," NBER Working Papers 5110, National Bureau of Economic Research, Inc.
  7. Head, Keith & Ries, John, 2002. "Offshore production and skill upgrading by Japanese manufacturing firms," Journal of International Economics, Elsevier, vol. 58(1), pages 81-105, October.
  8. Fleisher, Belton M. & Sabirianova, Klara & Wang, Xiaojun, 2005. "Returns to skills and the speed of reforms: Evidence from Central and Eastern Europe, China, and Russia," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 351-370, June.
  9. Pavcnik, Nina, 2003. "What explains skill upgrading in less developed countries?," Journal of Development Economics, Elsevier, vol. 71(2), pages 311-328, August.
  10. 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.
  11. Michael A. Landesmann & Robert Stehrer, 2002. "Evolving Competitiveness of CEEC’s in an Enlarged Europe," Rivista di Politica Economica, SIPI Spa, vol. 92(1), pages 23-88, January-F.
  12. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 435-51, November.
  13. Rosario Crinò, 2004. "Wages, Skills and International Integration in Poland, Hungary and the Czech Republic: An Industry-Level Analysis," KITeS Working Papers 160, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2004.
  14. Stephen Machin & John Van Reenen, 1998. "Technology and changes in skill structure: evidence from seven OECD countries," IFS Working Papers W98/04, Institute for Fiscal Studies.
  15. Nauro F. Campos & Abrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 793-836, September.
  16. Tito Boeri & Katherine Terrell, 2002. "Institutional Determinants of Labor Reallocation in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 51-76, Winter.
  17. Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April.
  18. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
  19. Commander, Simon & Kollo, Janos, 2004. "The Changing Demand for Skills: Evidence from the Transition," IZA Discussion Papers 1073, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Andzelika Lorentowicz & Dalia Marin & Alexander Raubold, 2005. "Is Human Capital Losing from Outsourcing? Evidence for Austria and Poland," CESifo Working Paper Series 1616, CESifo Group Munich.
  2. Rosario Crinò, 2011. "Imported Inputs and Skill Upgrading," Development Working Papers 323, Centro Studi Luca d\'Agliano, University of Milano, revised 27 Dec 2011.
  3. Peter Nunnenkamp & Rainer Schweickert & Manfred Wiebelt, 2007. "Distributional Effects of FDI: How the Interaction of FDI and Economic Policy Affects Poor Households in Bolivia," Development Policy Review, Overseas Development Institute, vol. 25(4), pages 429-450, 07.
  4. Peter Egger & Wolfgang Eggert & Hannes Winner, 2007. "Saving Taxes Through Foreign Plant Ownership," CESifo Working Paper Series 1887, CESifo Group Munich.
  5. Michael Moritz, 2009. "The impact of European integration on wage differentials in the Bavarian–Czech border region," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 3(2), pages 137-151, October.
  6. Eva Katalin Polgar & Julia Woerz, 2011. "Trade With Central and Eastern Europe: Is It Really a Threat to Wages in the West?," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 1-31, March.
  7. 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.

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