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Foreign Direct Investment and Wages in Indonesian Manufacturing

  • Robert E. Lipsey
  • Fredrik Sjoholm

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.

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File URL: http://www.nber.org/papers/w8299.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8299.

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Date of creation: May 2001
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Publication status: published as Lipsey, Robert E. & Sjoholm, Fredrik, 2004. "Foreign direct investment, education and wages in Indonesian manufacturing," Journal of Development Economics, Elsevier, vol. 73(1), pages 415-422, February.
Handle: RePEc:nbr:nberwo:8299
Note: ITI
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  1. 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.
  2. 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.
  3. Sjöholm, Fredrik, 1997. "Technology Gap, Competition and Spillovers from Direct Foreign Investment: Evidence from Establishment Data," SSE/EFI Working Paper Series in Economics and Finance 212, Stockholm School of Economics.
  4. Sjöholm, Fredrik, 1998. "Productivity Growth in Indonesia: The Role of Regional Characteristics and Direct Foreign Investment," SSE/EFI Working Paper Series in Economics and Finance 216, Stockholm School of Economics.
  5. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
  6. N. De Liso & G. Filatrella, 1999. "On technology competition," Working Papers 337, Dipartimento Scienze Economiche, Universita' di Bologna.
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