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Fdi Consequences Of Downward Wage–Cost Rigidities

Author

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  • JEONGSEOK SONG

    (School of Economics, Chung-Ang University, 84, Heukseok-ro, Dongjak-gu, Seoul Korea)

  • DAECHEON YANG

    (School of Business Administration, Chung-Ang University, 84, Heukseok-ro, Dongjak-gu, Seoul Korea)

  • SOONWON KWON

    (Division of Business Administration, Sookmyung University, Cheongpa-ro 47-gil 100, Yongsan-gu, Seoul Korea)

Abstract

This paper estimates an adjusted gravity model by directly measuring downward wage rigidities based on our modified regime-switching specification in order to investigate the effect of labor market flexibility on the flows of foreign direct investment (FDI) between Korea and 18 counterpart countries. To measure wage–cost rigidities, we employ firm-specific sales data for 410,012 firms in 19 countries obtained from Compustat as a relevant driver of wage costs extracted from earnings data by International Labor Organization (ILO). Our results suggest that greater wage rigidities in a counterpart country are associated with less net-outflows of FDI in Korea.

Suggested Citation

  • Jeongseok Song & Daecheon Yang & Soonwon Kwon, 2017. "Fdi Consequences Of Downward Wage–Cost Rigidities," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1223-1244, December.
    • Handle: RePEc:wsi:serxxx:v:62:y:2017:i:05:n:s0217590815501131
    DOI: 10.1142/S0217590815501131
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