DOES FOREIGN DIRECT INVESTMENT CAUSE A RACE TO THE BOTTOM?

Ozay Mehmet and Akbar Tavakoli

Journal of the Asia Pacific Economy, 2003, vol. 8, issue 2, 133-156

Abstract: In the current debate on globalization, a central concern is that foreign direct investment (FDI) may relocate jobs from high-income countries to labor-abundant economies forcing a competitive downward decline in real wages all around, known as 'race to the bottom' (RTB). The core of the RTB hypothesis is that FDI inflows increase the elasticity of demand for labor. This is a necessary condition for pushing wages downward toward minimum or subsistence levels in the global labor market. This paper provides empirical evidence from four Asian economies (China, the Philippines, Singapore, and Thailand) that support the RTB argument.

Date: 2003
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DOI: 10.1080/1354786032000074712

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