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

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  • Bruno Decreuse

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Paul Maarek

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

Abstract

This paper addresses the impact of FDI on the factor distribution of income in developing countries. We propose a theory that relies on the impacts of FDI on productive heterogeneity between firms in a frictional labor market. We argue that FDI have two opposite effects on the labor share: a negative force originated by market power and technological advance, and a positive force due to increased labor market competition between firms. Then, we test this theory on aggregate panel data through fixed effects and system-GMM estimations. We find a quantitatively meaningful U-shaped relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. However, most of the countries are stuck in the decreasing part of the curve,which we relate to multinationals' location choices.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00333704.

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Date of creation: 23 Oct 2008
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Handle: RePEc:hal:wpaper:halshs-00333704

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

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Citations

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Cited by:
  1. Elsa Orgiazzi & Paul Maarek, 2010. "Which factor bears the cost of currency crises?," 2010 Meeting Papers 810, Society for Economic Dynamics.
  2. Luciano BOGGIO & Vincenzo DALL’AGLIO & Marco MAGNANI, 2010. "On Labour Shares in Recent Decades: A Survey," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 118(3), pages 283-333.
  3. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2012. "North–South technology transfer in unionised multinationals," Journal of Development Economics, Elsevier, vol. 99(2), pages 385-395.
  4. Paul Maarek, 2012. "Labor share, Informal sector and Development," THEMA Working Papers 2012-34, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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