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Does Foreign Direct Investment Cause A Race To The Bottom?

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  • Ozay Mehmet
  • Akbar Tavakoli

Abstract

In the current debate on globalization, a central concern is that foreign direct investment (FDI) may relocate jobs from high-income countries to labor-abundant economies forcing a competitive downward decline in real wages all around, known as 'race to the bottom' (RTB). The core of the RTB hypothesis is that FDI inflows increase the elasticity of demand for labor. This is a necessary condition for pushing wages downward toward minimum or subsistence levels in the global labor market. This paper provides empirical evidence from four Asian economies (China, the Philippines, Singapore, and Thailand) that support the RTB argument.

Suggested Citation

  • Ozay Mehmet & Akbar Tavakoli, 2003. "Does Foreign Direct Investment Cause A Race To The Bottom?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 8(2), pages 133-156.
    • Handle: RePEc:taf:rjapxx:v:8:y:2003:i:2:p:133-156
    DOI: 10.1080/1354786032000074712
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    Cited by:

    1. Pierre-Louis Vézina, 2014. "Race-to-the-bottom Tariff Cutting," Review of International Economics, Wiley Blackwell, vol. 22(3), pages 444-458, August.
    2. Samuel Brazys & Minhaj Mahmud, 2022. "Poisoning the Well? The "Last Mile" Politics of Donor Control and Elite Capture in Bangladesh's Arsenic Mitigation," Working Papers 202207, Geary Institute, University College Dublin.
    3. Dimitar NIKOLOSKI, 2017. "The impact of Foreign Direct Investments on employment: the case of the Macedonian manufacturing sector," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 8, pages 147-165, December.
    4. Xin Zhao & Gregmar I. Galinato & Tim A. Graciano, 2019. "The Welfare Effects of Opening to Foreign Direct Investment in Polluting Sectors," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 243-269, September.
    5. Thomas Albrecht, 2005. "Where is the ‘Economic Centre’ of the Asia Pacific Region?," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 10(3), pages 359-379.
    6. Nappo, Alessandra Francesca, 2011. "The environment in the dynamics and interactions between economic growth and openness to international trade," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114631, European Association of Agricultural Economists.
    7. Elias G. Carayannis & Gaye Acikdilli & Christopher Ziemnowicz, 2020. "Creative Destruction in International Trade: Insights from the Quadruple and Quintuple Innovation Helix Models," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(4), pages 1489-1508, December.
    8. Talberth, John & Bohara, Alok K., 2006. "Economic openness and green GDP," Ecological Economics, Elsevier, vol. 58(4), pages 743-758, July.

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