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FDI and the labor share in developing countries: A theory and some evidence

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  • Maarek, Paul
  • Decreuse, Bruno

Abstract

We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on productive heterogeneity in a frictional labor market. FDI have two opposite effects: a negative force originated by technological advance, and a positive force due to increased labor market competition between firms. We test this theory on aggregate panel data through fixed effects and system-GMM estimations. We find a U-shaped relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. Most countries are stuck in the decreasing part of the curve. --

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2011 with number 54.

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Date of creation: 2011
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Handle: RePEc:zbw:gdec11:54

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Keywords: FDI; Matching frictions; Firm heterogeneity; Technological advance;

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Cited by:
  1. Luciano BOGGIO & Vincenzo DALL’AGLIO & Marco MAGNANI, 2010. "On Labour Shares in Recent Decades: A Survey," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 118(3), pages 283-333.
  2. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2012. "North–South technology transfer in unionised multinationals," Journal of Development Economics, Elsevier, vol. 99(2), pages 385-395.
  3. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
  4. Paul Maarek & Elsa Orgiazzi, 2011. "Which factor bears the cost of currency crises?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201101, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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