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Foreign Direct Investment, Wage Inequality, and Skilled Labor Demand in EU Accession Countries

  • Giovanni S.F. Bruno

    (Università Bocconi,Istituto di Economia Politica)

  • Rosario Crinò

    (Università di Bergamo, Dipartimento di Scienze Economiche)

  • Anna M. Falzoni

    (CESPRI, Università Bocconi)

During the 1990s Poland, Hungary and the Czech Republic have experienced rapid in-creases in wage inequality between skilled and unskilled workers and received the largest FDI inflow in Central and Eastern Europe. Using non-parametric and parametric approaches, this paper analyzes whether FDI has contributed to the raise in earning inequality and to the change in the skill composition of labor demand in the three countries. Our results suggest that, although FDI has not worsened wage inequality by favoring labor demand shifts, it has contributed to raising the skill-premium through the active role played by multinational firms in the transition-induced restructuring process which has resulted in a less compressed wage structure.

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Paper provided by KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy in its series KITeS Working Papers with number 154.

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Length: 38 pages
Date of creation: Feb 2004
Date of revision: Feb 2004
Handle: RePEc:cri:cespri:wp154
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  1. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
  2. Fleisher, Belton M. & Sabirianova, Klara & Wang, Xiaojun, 2005. "Returns to skills and the speed of reforms: Evidence from Central and Eastern Europe, China, and Russia," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 351-370, June.
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  7. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November.
  8. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
  9. Tito Boeri & Katherine Terrell, 2001. "Institutional Determinants of Labor Reallocation in Transition," William Davidson Institute Working Papers Series 384, William Davidson Institute at the University of Michigan.
  10. 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.
  11. Bruce A. Blonigen & Matthew J. Slaughter, 2001. "Foreign-Affiliate Activity And U.S. Skill Upgrading," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 362-376, May.
  12. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 435-51, November.
  13. Pavcnik, Nina, 2003. "What explains skill upgrading in less developed countries?," Journal of Development Economics, Elsevier, vol. 71(2), pages 311-328, August.
  14. Hanson, G.H. & Harrison, A., 1995. "Trade, Technology and Wage Inequality," Papers 95-20, Columbia - Graduate School of Business.
  15. Commander, Simon & Köllő, János, 2004. "The Changing Demand for Skills: Evidence from the Transition," IZA Discussion Papers 1073, Institute for the Study of Labor (IZA).
  16. Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April.
  17. Rosario Crinò, 2004. "Wages, Skills and International Integration in Poland, Hungary and the Czech Republic: An Industry-Level Analysis," KITeS Working Papers 160, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jul 2004.
  18. Head, Keith & Ries, John, 2002. "Offshore production and skill upgrading by Japanese manufacturing firms," Journal of International Economics, Elsevier, vol. 58(1), pages 81-105, October.
  19. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
  20. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
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