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Wage Inequality, Linkages and FDI

Author

Listed:
  • 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.

Suggested Citation

  • Driffield, Nigel & Girma, Sourafel & Henry, Michael & Taylor, Karl, 2010. "Wage Inequality, Linkages and FDI," IZA Discussion Papers 4722, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4722
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    References listed on IDEAS

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    5. Nigel Driffield & Max Munday & Annette Roberts, 2004. "Inward investment, transaction linkages and productivity spillovers," Papers in Regional Science, Springer;Regional Science Association International, vol. 83(4), pages 699-722, October.
    6. 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.
    7. 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, March.
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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.
    2. Merita Zulfiu Alili, 2014. "Simulation Analysis of the Effects of Increased Foreign Ownership on Wage Inequality," Academicus International Scientific Journal, Entrepreneurship Training Center Albania, issue 9, pages 140-158, January.
    3. Rongping Chang & Bei Wang & Yan Zhang & Lingxue Zhao, 2022. "Foreign Direct Investment and Air Pollution: Re-Estimating the “Pollution Haven Hypothesis” in China," Sustainability, MDPI, vol. 14(21), pages 1-20, October.

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    More about this item

    Keywords

    wage inequality; FDI spillovers; backwards and forwards linkages;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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