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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. Hartmut Egger & Udo Kreickemeier, 2011. "Why Foreign Ownership May be Good for You," CESifo Working Paper Series 3631, CESifo Group Munich.
  2. 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, June.
  3. Brian Aitken & Ann Harrison & Robert E. Lipsey, 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela and the United States," NBER Working Papers 5102, National Bureau of Economic Research, Inc.
  4. Beata Javorcik & Jens Matthias Arnold, 2009. "Gifted Kids or Pushy Parents? Foreign Direct Investment and Plant Productivity in Indonesia," Economics Series Working Papers 434, University of Oxford, Department of Economics.
  5. 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.
  6. 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.
  7. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  8. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2005. "Wages and International Rent Sharing in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 73-84, February.
  9. Rita Almeida, 2004. "The labor market effects of foreign-owned firms," Policy Research Working Paper Series 3300, The World Bank.
  10. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, june. pag.
  11. 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.
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