Labor Costs and Foreign Direct Investment: A Panel VAR Approach

Bahar Bayraktar-Sağlam and Selin Sayek Böke
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Bahar Bayraktar-Sağlam: Department of Economics, Hacettepe University, Beytepe 06800, Ankara, Turkey
Selin Sayek Böke: Department of Economics, Bilkent University, Bilkent 06800, Ankara, Turkey

Economies, 2017, vol. 5, issue 4, 1-23

Abstract: This paper examines the endogenous interaction between labor costs and Foreign Direct Investment (FDI) in the OECD countries via the Panel VAR approach under system GMM estimates for the period 1995–2009. The available data allows identifying the relevance of the components of labor costs, and allows a detailed analysis across different sectors. Empirical findings have revealed that sectoral composition of FDI and the decomposition of labor costs play a significant role in investigating the dynamic association between labor costs and FDI. Further, results suggest that labor market policies should focus on productivity-enhancing tools in addition to price hindering tools.

Keywords: foreign direct investment; labor cost; panel VAR; Impulse Response Functions (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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