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

Listed author(s):
  • 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
Handle: RePEc:mie:wpaper:618
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