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Does Plant Size Matter? Differential Effects of Foreign Direct Investment on Wages and Employment in Indian Manufacturing

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  • Shruti Sharma

    (Department of Social Sciences, Human Services and Criminal Justice; Borough of Manhattan Community College, The City University of New York. Author email: shruti009@gmail.com)

Abstract

This paper examines the differential effects, based on the size of the plant, of industry-level foreign direct investment (FDI) on plant-level employment and the wages of skilled and unskilled workers in India's manufacturing sector. On average, there are strong positive differential effects of increased inward-level FDI for large plants relative to small and average-sized plants in terms of employment and the average wages of both skilled and unskilled workers. Small plants experience negative effects from inward FDI, which can be explained by intra-industry reallocation of output from smaller to larger plants. After conducting a regional analysis, I find positive spillovers to small plants in Indian states that receive large and persistent flows of FDI. This suggests that a critical mass of FDI is necessary for small plants to experience positive spillover effects.

Suggested Citation

  • Shruti Sharma, 2018. "Does Plant Size Matter? Differential Effects of Foreign Direct Investment on Wages and Employment in Indian Manufacturing," Asian Development Review, MIT Press, vol. 35(1), pages 52-80, March.
    • Handle: RePEc:tpr:adbadr:v:35:y:2018:i:1:p:52-80
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    References listed on IDEAS

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    Cited by:

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    2. Huang, Bihong & Yu, Eden S. H. (ed.), 2020. "Ways to Achieve Green Asia," ADBI Books, Asian Development Bank Institute, number 11, Décembre.
    3. Lay, Jann & Tafese, Tevin, 2020. "Promoting private investment to create jobs: A review of the evidence," PEGNet Policy Studies 02/2020, PEGNet - Poverty Reduction, Equity and Growth Network, Kiel Institute for the World Economy (IfW Kiel).
    4. Sourafel Girma & Holger Görg & Erasmus Kersting, 2019. "Which boats are lifted by a foreign tide? Direct and indirect wage effects of foreign ownership," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(6), pages 923-947, August.
    5. Gnangnon, Sèna Kimm, 2020. "Development Aid, Remittances Inflows and Wages in the Manufacturing Sector of Recipient-Countries," EconStor Preprints 213439, ZBW - Leibniz Information Centre for Economics.
    6. Dani Rahman Hakim & Eeng Ahman & Kusnendi Kusnendi, 2023. "The effect of FDI on the host countries' employment: A meta-regression analysis," Russian Journal of Economics, ARPHA Platform, vol. 9(2), pages 158-182, July.

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    More about this item

    Keywords

    foreign direct investment; skill; spillovers; wages; workers;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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