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FDI and the labor share in developing countries: A theory and some evidence

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  • Paul Maarek
  • Bruno Decreuse

    ()
    (THEMA, Universite de Cergy-Pontoise
    Aix-Marseille School of Economics)

Abstract

We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on wage and labor productivity in a frictional labor market. FDI have two opposite effects on the labor share: a negative force originated by technological advance, and a positive force due to increased labor market competition between firms. We test this theory on aggregate panel data through fixed effects and IV estimates. We examine the relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. We show that FDI have decreased the labor share in the host countries of our dataset. This impact amounts to between 10% to 20% of the mean labor share in our sample.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2013-20.

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Date of creation: 2013
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Handle: RePEc:ema:worpap:2013-20

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Keywords: FDI; Matching frictions; Firm heterogeneity; Technological advance;

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Cited by:
  1. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2010. "North-South technology transfer in unionised multinationals," Working Papers in Economics 09/10, University of Bergen, Department of Economics.
  2. Paul Maarek & Elsa Orgiazzi, 2011. "Which factor bears the cost of currency crises?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201101, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  3. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
  4. Luciano Boggio & Vincenzo Dall'Aglio & Marco Magnani, 2009. "On Labour Shares in Recent Decades: A Survey," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq0957, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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