Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras

Robert Feenstra and Gordon Hanson

No 5122, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by multinationals from the United States and other Northern countries, is to shift production in Mexico towards relatively skill-intensive goods thereby increasing the relative demand for skilled labor. We study the impact of foreign direct investment (FDI) on the share of skilled labor in total wages in Mexico using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988. We measure the state- level growth in FDI using data on the regional activities of foreign- owned assembly plants. We find that growth in FDI is positively correlated with the relative demand for skilled labor. In the regions where FDI has been most concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor share of total wages that occurred during the late 1980s.

JEL-codes: F14 F21 (search for similar items in EconPapers)
Date: 1995-05
Note: EFG ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published as Journal of International Economics, Vol. 42 (1997): 371-394.

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Journal Article: Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras (1997)
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