CO SCI 136 Lecture Notes - Lecture 9: Panel Data, Foreign Direct Investment, Aggregate Demand
Document Summary
Lipsey 2004: host-country effects of inward foreign direct investment: host-country wages. There are several ways in which the entrance or existence of foreign firms might affect wages in the host countries where they operate. One is if these firms offer higher wages than are paid by domestic firms. If superior technology produced higher marginal labor productivity, but the expected response would be to expand output rather than to raise wages. It may be forced to do so by host-country regulations or home-country pressures. It might be that workers prefer locally owned firms and must be compensated to over- come this preference. Foreign-owned firms pay a premium to reduce worker turnover, because they have brought some proprietary technology and wish to reduce the speed with which it leaks out to domestic rivals as employees change jobs. The evidence seems to me overwhelming that foreign-owned firms in all kinds of economies pay higher wages than domestically owned firms.
