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Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries

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  • an de Meulen, Philipp

Abstract

Following the notion of skill-biased FDI fl ows from developed to less developed regions, high-skilled workers are likely to benefit from FDI to a larger extent. They earn a productivity advantage that potentially transfers into a skilled wage premium. This gives rise to distributional conflict that might turn into heterogeneous attitudes toward FDI inflows in line with skill. In this paper I study the eff ect of less developed countries' skill compositions on the risk of expropriation. Not surprisingly, it turns out that the risk of expropriation decreases with a larger employment share of high-skilled workers. However, in a theoretical model, the effect is diminishing and even turns negative in the empirical investigation: if the relative supply of high-skilled labor is too large, the skilled wage premium turns negative despite the skill-bias of FDI. Then, high-skilled workers' positive attitudes toward FDI vanish.

Suggested Citation

  • an de Meulen, Philipp, 2011. "Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries," Ruhr Economic Papers 298, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  • Handle: RePEc:zbw:rwirep:298
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    More about this item

    Keywords

    International investment; political economy; labor productivity; International investment; political economy; labor productivity;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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