TY - JOUR
T1 - Foreign direct investment and wage inequality
T2 - Is skill upgrading the culprit?
AU - Tomohara, Akinori
AU - Yokota, Kazuhiko
N1 - Funding Information:
An earlier draft of this article was prepared while the first author visited the ICSEAD as a visiting scholar. The first author acknowledges financial support from the ICSEAD and the Research Foundation of the City University of New York. The second author acknowledges financial support from the Grants-in-Aid for Scientific Research (No. 18530225). Specifically, we thank Eric Ramstetter for providing the industry survey data of Thailand and Robert Lipsey for his support for this project. We also thank Molly Sherlock and seminar participants at University of Pittsburgh and Waseda University for their helpful comments and suggestions for the earlier draft. All errors are ours.
PY - 2011
Y1 - 2011
N2 - This article examines whether inward Foreign Direct Investment (FDI) is a source of wage inequality between skilled and unskilled labour in developing countries. Although the literature has explored wage inequality issues, we studied the impacts of FDI on skill upgrading comprehensively, together with trade and other factors (such as FDI externalities). Specifically, our analysis introduces the origin of FDI, controls for plant heterogeneity and relates the results to the FDI theory on Multinational Enterprises (MNEs). The results show that, on average, FDI caused wage inequality because of FDI-led skill-biased technological change. However, Japanese and Taiwanese investments helped to alleviate the inequality. Japanese and Taiwanese FDI is motivated by cost advantages achieved through vertical FDI and thus increases relative demand for unskilled labour.
AB - This article examines whether inward Foreign Direct Investment (FDI) is a source of wage inequality between skilled and unskilled labour in developing countries. Although the literature has explored wage inequality issues, we studied the impacts of FDI on skill upgrading comprehensively, together with trade and other factors (such as FDI externalities). Specifically, our analysis introduces the origin of FDI, controls for plant heterogeneity and relates the results to the FDI theory on Multinational Enterprises (MNEs). The results show that, on average, FDI caused wage inequality because of FDI-led skill-biased technological change. However, Japanese and Taiwanese investments helped to alleviate the inequality. Japanese and Taiwanese FDI is motivated by cost advantages achieved through vertical FDI and thus increases relative demand for unskilled labour.
UR - http://www.scopus.com/inward/record.url?scp=79960065787&partnerID=8YFLogxK
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U2 - 10.1080/13504851.2010.491448
DO - 10.1080/13504851.2010.491448
M3 - Article
AN - SCOPUS:79960065787
SN - 1350-4851
VL - 18
SP - 773
EP - 781
JO - Applied Economics Letters
JF - Applied Economics Letters
IS - 8
ER -
