FDI and the labor share in developing countries: A theory and some evidence

Paul Maarek and Bruno Decreuse

No 54, Proceedings of the German Development Economics Conference, Berlin 2011 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on productive heterogeneity in a frictional labor market. FDI have two opposite effects: a negative force originated by technological advance, and a positive force due to increased labor market competition between firms. We test this theory on aggregate panel data through fixed effects and system-GMM estimations. We find a U-shaped relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. Most countries are stuck in the decreasing part of the curve.

Keywords: FDI; Matching frictions; Firm heterogeneity; Technological advance (search for similar items in EconPapers)
JEL-codes: E25 F16 F21 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-dev, nep-int, nep-lab and nep-mac
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Journal Article: FDI and the Labor Share in Developing Countries: A Theory and Some Evidence (2015)
Working Paper: FDI and the labor share in developing countries: A theory and some evidence (2015)
Working Paper: FDI and the labor share in developing countries: A theory and some evidence (2013)
Working Paper: FDI and the labor share in developing countries: A theory andsome evidence (2008)
Working Paper: FDI and the labor share in developing countries: a theory and some evidence (2008)
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