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The Effects of Multinational Production on Wages and Working Conditions in Developing Countries

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Author Info
Drusilla K. Brown (Tufts University)
Alan V. Deardorff (University of Michigan)
Robert M Stern (University of Michigan)

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Abstract

This paper is designed to assess the empirical evidence regarding the effects of multinational production on wages and working conditions in developing countries. It is motivated by the controversies that have emerged, especially in the past decade or so, concerning whether or not multinational firms in developing countries are exploiting their workers by paying low wages and subjecting them to coercive, abusive, unhealthy, and unsafe conditions in the workplace. We begin by addressing the efforts and programs of social activist groups and universities and colleges involved in the "Anti-Sweatshop" Campaign in the United States, the social accountability of multinational firms, and the role of such international insti-tutions as the International Labor Organization and World Trade Organization in dealing with labor standards and trade. We then consider the conceptual aspects of the effects of foreign direct investment on wages in host countries and the effects of outsourcing, subcontracting, and other forms of fragmenta-tion by multinational firms. We note in particular that available theories yield ambiguous predictions for the effects of multinational production on wages, leaving the effects to be examined empirically. We therefore, in the final section of the paper, review the empirical evidence on multinational firm wages in developing countries, and the relationship between foreign direct investment and labor rights. This evi-dence indicates that multinational firms routinely pay higher wages and provide better working conditions than their local counterparts, and they are typically not attracted preferentially to countries with weak labor standards.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 486.

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Length: 59 Pages
Date of creation: 2002
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Handle: RePEc:mie:wpaper:486

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Full references

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  9. Robert Stern, 2003. "Normes de travail et accords commerciaux," Revue d’économie du développement, De Boeck Université, vol. 17(4), pages 125-150. [Downloadable!]
  10. Eric Neumayer & Indra de Soysa, 2004. "Globalization and the Right to Free Association and Collective," Labor and Demography 0410006, EconWPA, revised 22 Apr 2005. [Downloadable!]
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  12. Alireza Naghavi, 2003. "Asymmetric Labor Markets and the Location of Firms - Are Multinationals Attracted to Weak Labor Standards?," Working Papers 200323, School Of Economics, University College Dublin. [Downloadable!]
  13. Robert M. Stern & Katherine Terrell, 2003. "Labor Standards and the World Trade Organization," Working Papers 499, Research Seminar in International Economics, University of Michigan. [Downloadable!]
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    Other versions:
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