GEOLOGY 002 Lecture Notes - Lecture 10: Capital Intensity, Import Substitution Industrialization, Foreign Direct Investment
Document Summary
Lipsey (2004) (section 9. 4): home - and host-country effects of foreign direct investment. 9. 4 host-country effects of inward foreign direct investment. Wage comparisons do foreign firms pay higher wages. Foreign-owned firms pay higher wages both in developing and developed countries. Difference can be explained by: fdi more directed at higher-wage industry, differential exists within industries. It may be forced to do so by host-country regulations or pressures. It might be that local workers prefer working for locally owned firms and must be compensated to overcome 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. Foreign firms with limited understanding of local markets pay higher wages to attract better workers that are more knowledgeable. Foreign-owned firms in all kinds of economies pay higher wages than domestically owned firms.
