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

  • Maarek, Paul
  • Decreuse, Bruno

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.

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2011 with number 54.

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Date of creation: 2011
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Handle: RePEc:zbw:gdec11:54
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