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FDI, Domestic Firms’ Productivity and Wage Premium of Skilled Workers: Evidence from Peru

Author

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  • Castro, Rebeca Ester Caritas

    (Korea University Business School, Republic of Korea)

  • Chung, Jaiho

    (Korea University Business School, Republic of Korea)

  • Pyun, Ju-Hyun

    (Korea University Business School, Republic of Korea)

Abstract

This study investigates the impact of foreign direct investment (FDI) on the productivity of domestic firms using Peruvian firm-level data from the World Bank Enterprise Surveys. While previous studies have examined the mobility of workers from multinational enterprises (MNEs) to domestic firms, this study explores the opposite turnover which MNEs attract skilled workers from domestic firms. We find that the positive FDI spillover is significantly reduced for domestic firms that employ a higher share of skilled workers but pay lower wages, and some of them are even exposed to negative FDI spillover. These results suggest that the wage gap between MNEs and domestic firms can hinder human capital transfers to domestic firms, instead causing MNEs to absorb skilled workers from the domestic market. However, the wage gap effect hindering FDI spillover is less pronounced for domestic firms that license technology from foreign MNEs.

Suggested Citation

  • Castro, Rebeca Ester Caritas & Chung, Jaiho & Pyun, Ju-Hyun, 2024. "FDI, Domestic Firms’ Productivity and Wage Premium of Skilled Workers: Evidence from Peru," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 49(4), pages 147-169, December.
    • Handle: RePEc:ris:jecdev:0104
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    More about this item

    Keywords

    Foreign Direct Investment; Labor Productivity; Skilled Labor; Human Capital; Peruvian Manufacturing Firm; Wage Premium;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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