Fragmentation, Efficiency-Seeking FDI, and Employment

Carsten Eckel ()

Review of International Economics, 2003, vol. 11, issue 2, pages 317-331

Abstract: The paper examines the impact of efficiency-seeking FDI on factor prices, employment, and output. The analysis shows that when transportation costs fall, companies start relocating labor-intensive production processes to low-wage countries. But this does not necessarily hurt workers in the high-wage country. The paper demonstrates an employment-depressing "relocation effect" and an employment-enhancing "efficiency effect." Employment is more likely to rise if the internationality of production is high and if the supply of capital is elastic. Furthermore, the model is capable of explaining intraindustry cross-hauling. Copyright Blackwell Publishing Ltd 2003..

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