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Does foreign direct investment affect wage inequality? An empirical investigation

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  • Paolo Figini
  • Holger Görg

Abstract

We use a panel of more than 100 countries for the period 1980 to 2002 to analyse the relationship between inward foreign direct investment (FDI) and wage inequality. We particularly check whether this relationship is non-linear, in line with a theoretical discussion. We find that the effect of FDI differs according to the level of development: we depict two different patterns, one for OECD (developed) and one for non-OECD (developing) countries. Results suggest the presence of a non linear effect in developing countries; wage inequality increases with FDI inward stock but this effect diminishes with further increases in FDI. For developed countries, wage inequality decreases with FDI inward stock and there is no robust evidence to show that this effect is non-linear.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp186.

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Date of creation: 05 Jan 2007
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Handle: RePEc:iis:dispap:iiisdp186

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Keywords: Foreign Direct Investment; Wage Inequality; Multinational Firms;

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Citations

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Cited by:
  1. Gabriela López Noria, 2011. "The Effect of Trade and FDI on Inter-industry Wage Differentials: The Case of Mexico," Working Papers 2011-10, Banco de México.
  2. Bruno Decreuse & Paul Maarek, 2008. "FDI and the labor share in developing countries: A theory andsome evidence," Working Papers halshs-00333704, HAL.
  3. Adriana Peluffo, 2013. "Foreign direct investment, productivity, demand for skilled labour and wage inequality: an analysis for Uruguay," Documentos de Trabajo (working papers) 13-02, Instituto de Economía - IECON.
  4. Dierk Herzer & Peter Nunnenkamp, 2013. "Inward and outward FDI and income inequality: evidence from Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(2), pages 395-422, June.
  5. Ali, Hamid E. & Lin, Eric S., 2010. "Wars, foodcost and countervailing policies: A panel data approach," Food Policy, Elsevier, vol. 35(5), pages 378-390, October.

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