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FDI and the labor share in developing countries: A theory and some evidence

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  • Maarek, Paul
  • Decreuse, Bruno

Abstract

We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on productive heterogeneity in a frictional labor market. FDI have two opposite effects: a negative force originated by technological advance, and a positive force due to increased labor market competition between firms. We test this theory on aggregate panel data through fixed effects and system-GMM estimations. We find a U-shaped relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. Most countries are stuck in the decreasing part of the curve.

Suggested Citation

  • Maarek, Paul & Decreuse, Bruno, 2011. "FDI and the labor share in developing countries: A theory and some evidence," Proceedings of the German Development Economics Conference, Berlin 2011 54, Verein für Socialpolitik, Research Committee Development Economics.
  • Handle: RePEc:zbw:gdec11:54
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    Cited by:

    1. Brada, Josef C., 2013. "The distribution of income between labor and capital is not stable: But why is that so and why does it matter?," Economic Systems, Elsevier, vol. 37(3), pages 333-344.
    2. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2012. "North–South technology transfer in unionised multinationals," Journal of Development Economics, Elsevier, vol. 99(2), pages 385-395.
    3. Katharina van Treeck & K.M. Wacker, 2017. "Financial Globalization and the Labor Share in Developing Countries: The Type of Capital Matters," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 219, Courant Research Centre PEG.
    4. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
    5. François Facchini & Mickael Melki & Andrew Pickering, 2017. "Labour Costs and the Size of Government," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(2), pages 251-275, April.
    6. Luciano BOGGIO & Vincenzo DALL’AGLIO & Marco MAGNANI, 2010. "On Labour Shares in Recent Decades: A Survey," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 118(3), pages 283-333.
    7. Elsa Orgiazzi & Paul Maarek, 2010. "Which factor bears the cost of currency crises?," 2010 Meeting Papers 810, Society for Economic Dynamics.
    8. repec:eee:poleco:v:52:y:2018:i:c:p:18-35 is not listed on IDEAS
    9. repec:khe:scajes:v:3:y:2017:i:4:p:35-49 is not listed on IDEAS
    10. Paul Maarek & Elsa Orgiazzi, 2014. "Labor Share and development," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201410, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    11. repec:bla:worlde:v:40:y:2017:i:11:p:2378-2402 is not listed on IDEAS
    12. Doan, Ha Thi Thanh & Wan, Guanghua, 2017. "Globalization and the Labor Share in National Income," ADBI Working Papers 639, Asian Development Bank Institute.
    13. Paul Maarek & Elsa Orgiazzi, 2015. "Development and the labor share," THEMA Working Papers 2015-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    14. Josef C. Brada & El-hadj Bah, 2014. "Growing Income Inequality as a Challenge to 21st Century Capitalism," a/ Working Papers Series 1402, Italian Association for the Study of Economic Asymmetries, Rome (Italy).

    More about this item

    Keywords

    FDI; Matching frictions; Firm heterogeneity; Technological advance;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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