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Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?

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  • Dirk Willem te Velde

Abstract

Do firms owned by foreigners pay higher wages than locally owned firms for apparently equivalent workers? Do such benefits accrue to all or only certain types of workers? This paper uses data on individual wages in manufacturing industry for five African countries in the early 1990s to address these questions. We present two main findings. First, foreign ownership is associated with a 20--40% increase in individual wages (conditional on age, tenure and education) on average. This is halved to 8--23% if we take into account the fact that foreign-owned firms are larger and locate in high-wage sectors and regions. Secondly, there is a tendency in some countries for more skilled workers (using occupation and education categories) to benefit more from foreign ownership than less skilled workers and this conclusion holds after accounting for the size distribution of foreign firms. We discuss, but cannot directly test, the plausibility of two explanations for these findings: (i) foreign-owned firms employ technologies that are more skill-biased than technologies in local firms and (ii) skilled workers in foreign firms are more effective in rent-sharing than other workers. We contend that these explanations may not be mutually exclusive and, hence, cannot be empirically distinguished. Copyright 2003, Oxford University Press.

Suggested Citation

  • Dirk Willem te Velde, 2003. "Do Workers in Africa Get a Wage Premium if Employed in Firms Owned by Foreigners?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 41-73, March.
  • Handle: RePEc:oup:jafrec:v:12:y:2003:i:1:p:41-73
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    Cited by:

    1. Léonce Ndikumana & Sher Verick, 2007. "The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment," UMASS Amherst Economics Working Papers 2007-13, University of Massachusetts Amherst, Department of Economics.
    2. Peter Egger & Marko Koethenbuerger, 2016. "Hosting multinationals: Economic and fiscal implications," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(01), pages 45-69, February.
    3. Martins, Pedro S., 2004. "Do Foreign Firms Really Pay Higher Wages? Evidence from Different Estimators," IZA Discussion Papers 1388, Institute for the Study of Labor (IZA).
    4. Herrmann, Raoul T., 2017. "Large-Scale Agricultural Investments and Smallholder Welfare: A Comparison of Wage Labor and Outgrower Channels in Tanzania," World Development, Elsevier, vol. 90(C), pages 294-310.
    5. Frost, Jon, 2008. "Returns to Qualification in Informal Employment: A Study of Urban Youth in Egypt," MPRA Paper 12599, University Library of Munich, Germany.
    6. Philipp Harms & Philipp Meulen, 2012. "The demographics of expropriation risk," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 809-832, July.
    7. Hartmut Egger & Udo Kreickemeier, 2017. "Why Foreign Ownership May be Good for You," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 13, pages 381-421 World Scientific Publishing Co. Pte. Ltd..
    8. Hijzen, Alexander & Martins, Pedro S. & Schank, Thorsten & Upward, Richard, 2013. "Foreign-owned firms around the world: A comparative analysis of wages and employment at the micro-level," European Economic Review, Elsevier, vol. 60(C), pages 170-188.
    9. Theodore H. Moran, 2014. "Foreign Investment and Supply Chains in Emerging Markets: Recurring Problems and Demonstrated Solutions," Working Paper Series WP14-12, Peterson Institute for International Economics.
    10. Harms, Philipp & Méon, Pierre-Guillaume, 2011. "An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries," Proceedings of the German Development Economics Conference, Berlin 2011 38, Verein für Socialpolitik, Research Committee Development Economics.
    11. Wagle, Udaya R., 2007. "Are Economic Liberalization and Equality Compatible? Evidence from South Asia," World Development, Elsevier, vol. 35(11), pages 1836-1857, November.
    12. Léonce Ndikumana & Sher Verick, 2008. "The Linkages Between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub-Saharan Africa," Development Policy Review, Overseas Development Institute, vol. 26(6), pages 713-726, November.
    13. Philipp Harms & Pierre-Guillaume Méon, 2014. "Good and bad FDI: The growth effects of greenfield investment and mergers and acquisitions in developing countries," Working Papers CEB 14-021, ULB -- Universite Libre de Bruxelles.
    14. repec:zbw:rwirep:0298 is not listed on IDEAS
    15. Sotiris Blanas & Adnan Seric & Christian Viegelahn, 2017. "Jobs, FDI and Institutions in Sub-Saharan Africa: Evidence from Firm-Level Data," Working Papers 152465485, Lancaster University Management School, Economics Department.
    16. Philipp an de Meulen, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 0298, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    17. Asian Development Bank Institute, 2017. "Asian Economic Integration Report 2016," Working Papers id:11730, eSocialSciences.
    18. Maria Bas, 2012. "Foreign ownership wage premium: Does financial health matter?," Working Papers 2012-24, CEPII research center.
    19. Elisa Giuliani & Chiara Macchi, 2013. "Multinational Corporations’ Economic And Human Rights Impacts On Developing Countries: A Review And Research Agenda," Discussion Papers 2013/158, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    20. Eugene Bempong Nyantakyi, 2016. "Family ties, firm performance and managerial compensations in African SMEs," Small Business Economics, Springer, vol. 46(3), pages 493-501, March.
    21. Oliver Morrissey, "undated". "Investment Provisions in Regional Integration Agreements for Developing Countries," Discussion Papers 08/06, University of Nottingham, CREDIT.
    22. an de Meulen, Philipp, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 298, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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