Foreign Direct Investment and Wages in Indonesian Manufacturing

Robert E. Lipsey () and Fredrik Sjoholm ()

No 8299, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper asks two types of questions. One is about the behavior of foreign-owned firms in Indonesian labor markets and the other is about the effect of the presence of foreign-owned firms on Indonesian wages. We ask first whether foreign-owned plants pay a higher price for labor, that is, more than locally-owned plants for workers of a given quality, as we can measure it. We then ask whether foreign-owned plants pay a higher price for labor given the characteristics of the plants such as their size, industry, and location. The answer is that foreign firms do pay a higher price, and even a higher price given their plant characteristics. The second set of questions is whether a larger presence of foreign-owned plants results in higher wages in locally-owned plants and overall. Higher foreign presence leads to higher wages in locally-owned plants. Since the foreign plants also pay higher wages than locally-owned ones, the two factors together mean that higher foreign presence raises the general wage level in a province and industry.

JEL-codes: O12 F23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2001-05
Note: ITI
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