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

Bruno Decreuse and Paul Maarek

MPRA Paper from University Library of Munich, Germany

Abstract: This paper addresses the impact of FDI on the labor share of income in developing countries. We propose a theory that relies on the impacts of FDI on productive heterogeneity between firms in a frictional labor market. We argue that FDI have two opposite effects on the labor share: a negative force originated by market power and technological advance, and a positive force due to increased labor market competition between firms. Then, we test this theory on aggregate panel data through fixed effects and system-GMM estimations. We find a quantitatively meaningful U- shaped relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. However, most of the countries are stuck in the decreasing part of the curve, which we relate to multinationals' location choices.

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: 2008-10
New Economics Papers: this item is included in nep-dev, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: 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 (2015)
Working Paper: FDI and the labor share in developing countries: A theory and some evidence (2013)
Working Paper: FDI and the labor share in developing countries: A theory andsome evidence (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11224

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