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FDI and the relative wage in a North South global economy

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  • Subhadip Ghosh

    (Indian Statistical Institute, New Delhi)

Abstract

This paper examines the effect on relative wages when FDI occurs from the North to the South. The Northern firms undertake FDI to take advantage of the lower wage of unskilled labor in the South. The key assumption is that FDI from North to South occurs in an unskilled labor intensive production activity, but that activity is located in a sector that is relatively skill-intensive. It is shown that FDI leads to an increase in the relative wage of skilled labor in both North and South. It is also found that FDI may increase unemployment of unskilled labor in the South.

Suggested Citation

  • Subhadip Ghosh, 2003. "FDI and the relative wage in a North South global economy," Discussion Papers 03-03, Indian Statistical Institute, Delhi.
    • Handle: RePEc:alo:isipdp:03-03
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    File URL: http://www.isid.ac.in/~pu/dispapers/dp03-03.pdf
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    References listed on IDEAS

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    5. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
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    8. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
    9. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
    10. Das, Satya P., 2002. "Foreign direct investment and the relative wage in a developing economy," Journal of Development Economics, Elsevier, vol. 67(1), pages 55-77, February.
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    Cited by:

    1. Juárez Rivera Carmen Guadalupe & Ángeles Castro Gerardo, 2013. "Foreign direct investment in Mexico Determinants and its effect on income inequality," Contaduría y Administración, Accounting and Management, vol. 58(4), pages 201-222, octubre-d.

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    More about this item

    Keywords

    FDI; Relative wage; North-South trade; Vertical integration; Arms-length trading;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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