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Does Plant Size Matter? Differential Effects of Foreign Direct Investment on Wages and Employment in Indian Manufacturing

Shruti Sharma ()

Asian Development Review, 2018, vol. 35, issue 1, 52-80

Abstract: This paper examines the differential effects, based on the size of the plant, of industry-level foreign direct investment (FDI) on plant-level employment and the wages of skilled and unskilled workers in India's manufacturing sector. On average, there are strong positive differential effects of increased inward-level FDI for large plants relative to small and average-sized plants in terms of employment and the average wages of both skilled and unskilled workers. Small plants experience negative effects from inward FDI, which can be explained by intra-industry reallocation of output from smaller to larger plants. After conducting a regional analysis, I find positive spillovers to small plants in Indian states that receive large and persistent flows of FDI. This suggests that a critical mass of FDI is necessary for small plants to experience positive spillover effects.

Keywords: foreign direct investment; skill; spillovers; wages; workers (search for similar items in EconPapers)
JEL-codes: D22 F62 J24 J31 (search for similar items in EconPapers)
Date: 2018
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