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Foreign Direct Investment and Wages in Indonesian Manufacturing

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  • Robert E. Lipsey
  • Fredrik Sjoholm

Abstract

This paper asks two types of questions. One is about the behavior of foreign-owned firms in Indonesian labor markets and the other is about the effect of the presence of foreign-owned firms on Indonesian wages. We ask first whether foreign-owned plants pay a higher price for labor, that is, more than locally-owned plants for workers of a given quality, as we can measure it. We then ask whether foreign-owned plants pay a higher price for labor given the characteristics of the plants such as their size, industry, and location. The answer is that foreign firms do pay a higher price, and even a higher price given their plant characteristics. The second set of questions is whether a larger presence of foreign-owned plants results in higher wages in locally-owned plants and overall. Higher foreign presence leads to higher wages in locally-owned plants. Since the foreign plants also pay higher wages than locally-owned ones, the two factors together mean that higher foreign presence raises the general wage level in a province and industry.

Suggested Citation

  • Robert E. Lipsey & Fredrik Sjoholm, 2001. "Foreign Direct Investment and Wages in Indonesian Manufacturing," NBER Working Papers 8299, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8299
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    References listed on IDEAS

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    1. Manning,Chris, 1998. "Indonesian Labour in Transition," Cambridge Books, Cambridge University Press, number 9780521594127, January.
    2. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 577-598.
    3. Fredrik Sjoholm, 1999. "Technology gap, competition and spillovers from direct foreign investment: Evidence from establishment data," Journal of Development Studies, Taylor & Francis Journals, vol. 36(1), pages 53-73.
    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. Sjoholm, Fredrik, 1999. "Productivity Growth in Indonesia: The Role of Regional Characteristics and Direct Foreign Investment," Economic Development and Cultural Change, University of Chicago Press, vol. 47(3), pages 559-584, April.
    6. Sjöholm, Fredrik, 1999. "Economic Recovery in Indonesia: The Challenge of Combining FDI and Regional Development," SSE/EFI Working Paper Series in Economics and Finance 347, Stockholm School of Economics.
    7. N. De Liso & G. Filatrella, 1999. "On technology competition," Working Papers 337, Dipartimento Scienze Economiche, Universita' di Bologna.
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    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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