There has been little analysis of the impact of inward foreign direct investment (FDI) on U.S. wage inequality, even though the presence of foreign-owned affiliates in the United States has arguably grown more rapidly in significance for the U.S. economy than trade flows. Using data across U.S. manufacturing from 1977 to 1994, this paper tests whether inward flows of FDI contributed to within-industry shifts in U.S. relative labor demand toward more-skilled labor. We generally find that inward FDI has not contributed to U.S. within-industry skill upgrading; in fact, the wave of Japanese greenfield investments in the 1980s was significantly correlated with lower, not higher, relative demand for skilled labor. This finding is consistent with recent models of multinational enterprises in which foreign affiliates focus on activities less skilled-labor intensive than the activities of their parent firms. It also suggests that if inward FDI brought new technologies into the United States, the induced technological change was not biased towards skilled labor.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7040.
Length: Date of creation: Mar 1999 Date of revision: Publication status: published as Blonigen, Bruce A. and Matthew J. Slaughter. "Foreign-Affiliate Activity And U.S. Skill Upgrading," Review of Economics and Statistics, 2001, v83(2,May), 362-376. Handle: RePEc:nbr:nberwo:7040
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Find related papers by 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
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