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Foreign Direct Investment Elasticities of Output, Labor, and Wages in Chile: A Simultaneous Equations Approach

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  • Félix Modrego

    (Escuela de Negocios y Economía, Facultad de Ciencias Económicas y Administrativas, Pontificia Universidad Católica de Valparaíso, Amunátegui 1838, Viña del Mar 2581548, Chile)

  • Jorge Ortega

    (Departamento de Ingeniería Comercial, Universidad Técnica Federico Santa María, Av. España 1680, Valparaíso 2390123, Chile)

  • Lenia Planas

    (Impronta Consultora Spa, Nataniel Cox 47, Of. 51, Santiago 8330165, Chile)

  • Álvaro Astudillo

    (Escuela de Ciencias Sociales, Universidad de O’Higgins, Libertador Bernardo O’Higgins 611, Rancagua 2841959, Chile)

Abstract

We estimate foreign direct investment elasticities of output, of unskilled and skilled labor, and of unskilled and skilled wages for Chile, both at an aggregate level and for eight economic sectors. We use regional data from official Chilean sources ranging from 2012 to 2019 and data from economic sectors in each region for the period 1996–2011. Estimates are based on a simultaneous equation approach, which considers the two-way relationships between FDI and output as well as the relationships between output, labor, and wages stressed by the duality theory of production in economics. The estimations confirm that FDI triggers growth and that FDI follows growth. Due to the positive effects on output, FDI boosts employment creation, particularly of skilled labor. The estimated effects on wages are not significant, either statistically or practically. The output and labor effects of FDI are positive and significant in all economic sectors, but point estimates suggest that they could be larger for the agriculture-forestry-fishing sector. The results indicate that realistic increases in FDI can have substantial output and employment effects in Chile.

Suggested Citation

  • Félix Modrego & Jorge Ortega & Lenia Planas & Álvaro Astudillo, 2022. "Foreign Direct Investment Elasticities of Output, Labor, and Wages in Chile: A Simultaneous Equations Approach," Economies, MDPI, vol. 10(12), pages 1-21, November.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:12:p:295-:d:983980
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    References listed on IDEAS

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