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Foreign Direct Investment and Wages in Indonesian Manufacturing

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  • Robert E. Lipsey
  • Fredrik Sjoholm

Abstract

This paper asks two types of questions. One is about the behavior of foreign-owned firms in Indonesian labor markets and the other is about the effect of the presence of foreign-owned firms on Indonesian wages. We ask first whether foreign-owned plants pay a higher price for labor, that is, more than locally-owned plants for workers of a given quality, as we can measure it. We then ask whether foreign-owned plants pay a higher price for labor given the characteristics of the plants such as their size, industry, and location. The answer is that foreign firms do pay a higher price, and even a higher price given their plant characteristics. The second set of questions is whether a larger presence of foreign-owned plants results in higher wages in locally-owned plants and overall. Higher foreign presence leads to higher wages in locally-owned plants. Since the foreign plants also pay higher wages than locally-owned ones, the two factors together mean that higher foreign presence raises the general wage level in a province and industry.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8299.

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Date of creation: May 2001
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Publication status: published as Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.
Handle: RePEc:nbr:nberwo:8299

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  1. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," NBER Working Papers 3993, National Bureau of Economic Research, Inc.
  2. Sjoholm, Fredrik, 1999. "Productivity Growth in Indonesia: The Role of Regional Characteristics and Direct Foreign Investment," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 47(3), pages 559-84, April.
  3. Fredrik Sjoholm, 1999. "Technology gap, competition and spillovers from direct foreign investment: Evidence from establishment data," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(1), pages 53-73.
  4. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, Elsevier, vol. 40(3-4), pages 345-371, May.
  5. Sjöholm, Fredrik, 1999. "Economic Recovery in Indonesia: The Challenge of Combining FDI and Regional Development," Working Paper Series in Economics and Finance 347, Stockholm School of Economics.
  6. N. De Liso & G. Filatrella, 1999. "On technology competition," Working Papers 337, Dipartimento Scienze Economiche, Universita' di Bologna.
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