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Foreign Direct Investment and Wages: Does the Level of Ownership Matter?

  • Bircan, Çağatay

    (University of Michigan)

This paper examines the relationship between foreign equity participation and average wages at the plant level. I show that using a binary measure for foreign ownership, as is the traditional practice in the literature, leads to biased estimates of the foreign ownership wage premium, compared to the use of a continuous mea- sure if the true relationship is linear. Using nonparametric and semi-parametric techniques I find this is the case: the relationship between the level of foreign ownership and average wages is better approximated as linear rather than binary. I find that a ten percentage point increase in foreign equity participation is asso- ciated with an approximately 4% increase in the average wage of non-production workers. These results are the first to show that the wage premium due to foreign ownership varies with the level of foreign ownership in a continuous manner.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers601-625/r618.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 618.

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Length: 52 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:mie:wpaper:618
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  1. Egger, Hartmut & Kreickemeier, Udo, 2011. "Why foreign ownership may be good for you," University of Tuebingen Working Papers in Economics and Finance 19, University of Tuebingen, Faculty of Economics and Social Sciences.
  2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  3. Matthias Arnold, Jens & Javorcik, Beata S., 2009. "Gifted kids or pushy parents? Foreign direct investment and plant productivity in Indonesia," Journal of International Economics, Elsevier, vol. 79(1), pages 42-53, September.
  4. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May.
  5. Budd, John W. & Konings, Jozef & Slaughter, Matthew J., 2002. "Wages and International Rent Sharing in Multinational Firms," IZA Discussion Papers 560, Institute for the Study of Labor (IZA).
  6. 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.
  7. Rita Almeida, 2004. "The labor market effects of foreign-owned firms," Policy Research Working Paper Series 3300, The World Bank.
  8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  9. Robert E. Baldwin & Robert E. Lipsey & J. David Richards, 1998. "Geography and Ownership as Bases for Economic Accounting," NBER Books, National Bureau of Economic Research, Inc, number bald98-1.
  10. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, June.
  11. Barbosa, Natalia & Louri, Helen, 2002. "On the determinants of multinationals' ownership preferences: evidence from Greece and Portugal," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 493-515, April.
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