Racing to the bottom for FDI? The changing role of labor costs and infrastructure

Andrea Amaro and William Miles ()
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William Miles: Wichita State University, USA

Journal of Developing Areas, 2006, vol. 40, issue 1, 1-14

Abstract: The opening of low wage nations to FDI has created much more competition for investment since the beginning of the 1990s. Observers in middle-income developing countries such as Brazil, Malaysia and Mexico, which have benefited from FDI, express fears of losing to new, lower wage destinations. Are such countries facing a dilemma, in which the very wage growth provided by FDI must be reversed to continue attracting investment? Or, are there alternative means of enticing multinational corporations, in particular physical infrastructure, which avoid a "race to the bottom" in terms of living standards and in fact aid in development goals? Empirical results indicate that while wages have become a more important determinant of FDI between the 1980s and 1990s, so has infrastructure quality.

Keywords: Capital Flows; Developing Countries; Foreign Direct Investment; Infrastructure (search for similar items in EconPapers)
JEL-codes: F21 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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