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

  • Paul Maarek

    ()

    (THEMA, Universite de Cergy-Pontoise)

  • Bruno Decreuse

    ()

    (Aix-Marseille School of Economics)

We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on wage and labor productivity in a frictional labor market. FDI have two opposite effects on the labor share: 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 IV estimates. We examine the relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. We show that FDI have decreased the labor share in the host countries of our dataset. This impact amounts to between 10% to 20% of the mean labor share in our sample.

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2013-20.

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Date of creation: 2013
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Handle: RePEc:ema:worpap:2013-20
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