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Foreign Direct Investment and Wages in Indonesian Manufacturing

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Author Info
Robert E. Lipsey
Fredrik Sjoholm

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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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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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Handle: RePEc:nbr:nberwo:8299

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Find related papers by JEL classification:
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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  1. 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, vol. 40(3-4), pages 345-371, May. [Downloadable!] (restricted)
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  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, vol. 47(3), pages 559-84, April.
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  3. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August. [Downloadable!] (restricted)
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  4. 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. [Downloadable!]
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