 Labor share, FDI and ProductivityIstván Kónya and Judit Krekó Corvinus Economics Working Papers (CEWP) from Corvinus University of Budapest Abstract: This paper examines how foreign direct investment affects the labor share through productivity differences between foreign- and domestically owned firms. We develop a search-and-matching model in which more productive foreign firms acquire domestic firms. Foreign ownership raises productivity and wages, but incomplete pass-through of the productivity advantage to workers reduces the labor share. Using European industry-level data, we find that greater foreign employment penetration is associated with lower labor shares and that the foreign productivity premium substantially exceeds the foreign wage premium. Hungarian administrative firm data show the same pattern: foreign-owned firms have higher productivity and labor costs but lower labor shares. Event-study estimates around foreign acquisitions are less precise but are consistent with this mechanism at longer horizons. Our results show how economies with a large foreign-owned sector can combine relatively high wages with relatively low labor shares and highlight persistent foreign–domestic productivity differences as a potential explanation for labor-share differences across Europe. Keywords: foreign direct investment; foreign ownership; labor share; labor productivity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cvh:coecwp:2026/04 Access Statistics for this paper More papers in Corvinus Economics Working Papers (CEWP) from Corvinus University of Budapest 1093 Budapest, Fõvám tér 8.. Contact information at EDIRC. |
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