Foreign Direct Investment, Product Sophistication, and the Demand for Skilled and Unskilled Labor in Chilean Manufacturing

Wei Jia and Ricardo López Rago

Journal of Development Studies, 2021, vol. 57, issue 1, 70-87

Abstract: This paper uses plant-level data from the manufacturing sector of Chile for the period 1995–2007 to analyse the existence of spillover effects from foreign direct investment (FDI) and the role of product sophistication on the demand for skilled and unskilled labour. We find that the presence of multinational corporations increases the demand for highly skilled labour while it decreases the demand for unskilled labour on firms located in the same industry and region, and also on firms located in the same region but operating in different industries. Those effects are more substantial for firms producing less sophisticated products suggesting that, at least for the case of Chile, lower levels of sophistication can make it easier for local firms to learn from multinational corporations. We also find that the spillover effects are more important for plants that are small in size and for those that do not participate in international markets as either exporters or importers. This paper contributes to the literature by showing that product sophistication can have a significant effect on the magnitude of FDI spillovers on the demand for both skilled and unskilled labour.

Date: 2021
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DOI: 10.1080/00220388.2020.1797687

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