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Wage Inequality, Linkages and FDI

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Author Info

  • Driffield, Nigel

    ()
    (Aston University)

  • Girma, Sourafel

    ()
    (University of Nottingham)

  • Henry, Michael

    ()
    (Aston University)

  • Taylor, Karl

    ()
    (University of Sheffield)

Abstract

This paper extends the existing literature on FDI and wage inequality. We do this in two ways. Firstly, we incorporate more precise measures of inward investment into the model, by allowing for differences in the effects between horizontal and vertical FDI. Secondly, after establishing the effects that inward investment has on wage inequality, we then analyse the reasons for this in terms of the wages paid to skilled and unskilled workers, and the effect that inward investment has on this. We illustrate the important differences that horizontal and vertical FDI have on both wages and wage inequality, and the importance of allowing for regional differences in the results. FDI nationally tends to increase wage inequality, while the local, effects are opposite. FDI into assisted areas tends to increase wage inequality nationally, when the MNEs purchase inputs in the local region.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4722.

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Length: 29 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4722

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Keywords: wage inequality; FDI spillovers; backwards and forwards linkages;

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References

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  1. Bernard, Andrew B. & Jensen, J. Bradford, 1997. "Exporters, skill upgrading, and the wage gap," Journal of International Economics, Elsevier, vol. 42(1-2), pages 3-31, February.
  2. Bresnahan, Timothy F, 1999. "Computerisation and Wage Dispersion: An Analytical Reinterpretation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(456), pages F390-415, June.
  3. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  4. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  5. Eve Caroli & John Van Reenen, 2001. "Skill-Biased Organizational Change? Evidence From A Panel Of British And French Establishments," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1449-1492, November.
  6. Daron Acemoglu, 1998. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," NBER Working Papers 6658, National Bureau of Economic Research, Inc.
  7. Nigel Driffield & Max Munday & Annette Roberts, 2004. "Inward investment, transaction linkages and productivity spillovers," Economics of Governance, Springer, vol. 83(4), pages 699-722, October.
  8. Nigel Driffield & Sourafel Girma, 2003. "Regional Foreign Direct Investment and Wage Spillovers: Plant Level Evidence from the UK Electronics Industry," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(4), pages 453-474, 09.
  9. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 227-51, February.
  10. Nigel Driffield & James H. Love & Karl Taylor, 2009. "Productivity And Labour Demand Effects Of Inward And Outward Foreign Direct Investment On Uk Industry," Manchester School, University of Manchester, vol. 77(2), pages 171-203, 03.
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Cited by:
  1. Rafal Kierzenkowski & Isabell Koske, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 8. The Drivers of Labour Income Inequality – A Literature Review," OECD Economics Department Working Papers 931, OECD Publishing.

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