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The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis

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  • Özlem Onaran

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

  • Engelbert Stockhammer

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

The aim of this paper is to estimate the effect of FDI and trade openness on wages in the CEECs in the post-transition era. We utilize a cross-country sector-specific eceonometric analysis based on one-digit level panel data for manufacturing industry in the Czech Republic, Hungary, Poland, Slovakia, Slovenia, for the period of 2000-2004. The results suggest that the increases in productivity are reflected in wages only to a modest extent, even in the long-term, leading to a steady decline in the share of labor in manufacturing industry in almost all sub-sectors in all countries. Meanwhile, the high significant and negative effect of unemployment on wages shows that the labor market is flexible in terms of wage flexibility. FDI has a positive effect on wages only in the capital and skill intensive sectors. The results also show that the increase in trade with EU did not lead to positive prospects for wages in manufacturing industry, contrary to the expectations of pro-market policies and traditional trade theory. The long-term net effect of exports and imports is negative, suggesting that integration of CEECs to EU via trade liberalization have worked at the expense of labor.

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Bibliographic Info

Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp094.

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Date of creation: Jun 2006
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Handle: RePEc:wiw:wiwwuw:wuwp094

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  1. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
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  4. Peter Egger & Robert Stehrer, 2001. "International Outsourcing and the Skill-Specific Wage Bill in Eastern Europe," wiiw Working Papers 17, The Vienna Institute for International Economic Studies, wiiw.
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  6. Milner, Chris & Wright, Peter, 1998. "Modelling Labour Market Adjustment to Trade Liberalisation in an Industrialising Economy," Economic Journal, Royal Economic Society, vol. 108(447), pages 509-28, March.
  7. Ozlem Onaran, 2005. "Distribution and Globalization: A Wage Bargaining Model," Working Papers geewp48, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  8. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
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  10. Robert Stehrer & Julia Woerz, 2009. "‘Attract FDI!’ — A universal golden rule? Empirical evidence for OECD and selected non-OECD countries," The European Journal of Development Research, Palgrave Macmillan, vol. 21(1), pages 95-111, February.
  11. Anderton, Bob & Brenton, Paul, 1999. "Outsourcing and Low-Skilled Workers in the UK," Bulletin of Economic Research, Wiley Blackwell, vol. 51(4), pages 267-85, October.
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  14. Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
  15. Peter Havlik, 2005. "Structural Change, Productivity and Employment in the New EU Member States," wiiw Research Reports 313, The Vienna Institute for International Economic Studies, wiiw.
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Citations

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Cited by:
  1. Götz Zeddies, 2010. "International Trade Patterns and Labor Markets – An Empirical Analysis for EU Member States," IWH Discussion Papers 15, Halle Institute for Economic Research.
  2. Goetz Zeddies, 2012. "International trade patterns and labour markets – an empirical analysis for EU member states," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 4(1/2), pages 96-115.
  3. Özlem Onaran, 2008. "The Effects of Globalization on Wages, Employment, and Wage Share in Austria," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 34(3), pages 337-360.
  4. Fritz Breuss, 2007. "Globalization, EU Enlargement and Income Distribution," WIFO Working Papers 296, WIFO.
  5. Polgár, Éva Katalin & Wörz, Julia, 2010. "Trade with central and eastern Europe: Is it really a threat to wages in the west?," Working Paper Series 1244, European Central Bank.
  6. Özlem Onaran & Nursel Aydiner-Avsar, 2006. "The controversy over employment policy: Low labor costs and openness, or demand policy? A sectoral analysis for Turkey," Department of Economics Working Papers wuwp097, Vienna University of Economics, Department of Economics.
  7. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer, vol. 37(2), pages 127-163, May.
  8. repec:onb:oenbwp:y:2009:i:1:b:1 is not listed on IDEAS
  9. Özlem Onaran, 2006. "Speculation-led growth and fragility in Turkey: Does EU make a difference or "can it happen again"?," Department of Economics Working Papers wuwp093, Vienna University of Economics, Department of Economics.

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