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Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries

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  • Philipp an de Meulen

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Abstract

Following the notion of skill-biased FDI flows from developed to less developed regions, high-skilled workers are likely to benefit from FDI to a larger extent. They earn a productivity advantage that potentially transfers into a skilled wage premium. This gives rise to distributional conflict that might turn into heterogeneous attitudes toward FDI inflows in line with skill. In this paper I study the effect of less developed countries’ skill compositions on the risk of expropriation. Not surprisingly, it turns out that the risk of expropriation decreases with a larger employment share of high-skilled workers. However, in a theoretical model, the effect is diminishing and even turns negative in the empirical investigation - if the relative supply of high-skilled labor is too large, the skilled wage premium turns negative despite the skill-bias of FDI. Then, high-skilled workers’ positive attitudes toward FDI vanish.

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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0298.

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Length: 43 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:rwi:repape:0298

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Keywords: International investment; political economy; labor productivity;

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