Vertical FDI Reviseted

Henrik Braconier, Pehr-Johan Norbäck and Dieter Urban
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Henrik Braconier: National Institute of Economic Research, Stockholm

No 167, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

Abstract: This study explores how relative skilled-wage premia affect FDI. Contrary to previous studies based on factor endowment differences, we find strong support for vertical FDI, in the sense that more FDI is conducted in countries where unskilled labor is relatively cheap. In addition, we find that relative skill-premia also affect FDI activities that have previously been associated with horizontal FDI, i.e. local affiliate sales. Consequently, the potential effects of changes in the relative wage costs on international production reallocation within MNEs are large. In fact, if not for the 8% rise in the US skilled wage premium relative to the average host country between 1986-1994, annual US affiliate sales abroad in relation to US GDP would have been half a percentage point higher.

Keywords: multinational firms; wage differentials (search for similar items in EconPapers)
JEL-codes: F23 (search for similar items in EconPapers)
Date: 2002-11-01
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Working Paper: Vertical FDI Revisited (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:csl:devewp:167

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