Capital Flows, Vertical Multinationals, Wage Inequality, and Welfare

Wen‐Jung Liang and Chao‐Cheng Mai

Review of Development Economics, 2003, vol. 7, issue 4, 599-608

Abstract: Wage inequality between skilled and unskilled labor in the US and its trading partners, Mexico and Chile, has increased since 1980, while Taiwan's wage inequality has decreased since the mid‐1980s. The authors provide a new explanation for the latter, involving a rise in capital flows from Taiwan to less‐developed countries (LDCs) in the form of vertical multinationals (MNEs), and a corresponding rise in intermediate‐good exports from the MNEs to subsidiaries in LDCs. Moreover, national income in both countries definitely improves.

Date: 2003
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