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FDI and the labor share in developing countries: A theory and some evidence

Paul Maarek () and Bruno Decreuse ()

No 2013-20, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on wage and labor productivity in a frictional labor market. FDI have two opposite effects on the labor share: a negative force originated by technological advance, and a positive force due to increased labor market competition between firms. We test this theory on aggregate panel data through fixed effects and IV estimates. We examine the relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. We show that FDI have decreased the labor share in the host countries of our dataset. This impact amounts to between 10% to 20% of the mean labor share in our sample.

Keywords: FDI; Matching frictions; Firm heterogeneity; Technological advance (search for similar items in EconPapers)
JEL-codes: E25 F16 F21 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-int and nep-mac
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Related works:
Journal Article: FDI and the Labor Share in Developing Countries: A Theory and Some Evidence (2015) Downloads
Working Paper: FDI and the labor share in developing countries: A theory and some evidence (2015)
Working Paper: FDI and the labor share in developing countries: A theory and some evidence (2011) Downloads
Working Paper: FDI and the labor share in developing countries: A theory andsome evidence (2008) Downloads
Working Paper: FDI and the labor share in developing countries: a theory and some evidence (2008) Downloads
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