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FDI effects on the labor market of host countries

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  • Galina Hale
  • Mingzhi Xu

Abstract

This paper surveys literature on impact of foreign direct investments (FDI) on host country?s labor market, including employment, wages, labor productivity, skill premium, and inequality. Meta-analysis of empirical findings suggests that there is solid consensus with respect to wages: in both developing and developed countries FDI leads to higher wages in target firms and industries. Majority of the papers also find positive productivity spillovers as well as increase in skill premium as a result of FDI, especially in developing economies. We analyze all the findings together to address possible mechanisms of FDI effects on labor in target firms, in competing firms, and in vertically related firms. We present a stylized model that is consistent with many empirical regularities found in meta-analysis of empirical literature.

Suggested Citation

  • Galina Hale & Mingzhi Xu, 2016. "FDI effects on the labor market of host countries," Working Paper Series 2016-25, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2016-25
    DOI: 10.24148/wp2016-25
    Note: This paper was prepared as an entry to the Handbook on Foreign Direct Investments
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    2. Ashraf, Nava & Bandiera, Oriana & Minni, Virginia & Quintas-Martínez, Víctor, 2024. "Gender Gaps across the Spectrum of Development: Local Talent and Firm Productivity," IZA Discussion Papers 17103, Institute of Labor Economics (IZA).
    3. Sara Amoroso & Pietro Moncada-Paternò-Castello, 2018. "Inward Greenfield FDI and Patterns of Job Polarization," Sustainability, MDPI, vol. 10(4), pages 1-20, April.
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    5. Boker Poumie & Dounya Matsop Claude, 2021. "Does Foreign Capital Really Matter for Employment? Evidence from Agricultural Dominance African Countries," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(2), pages 88-104, June.
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    7. Coveri, Andrea & Paglialunga, Elena & Zanfei, Antonello, 2024. "Global value chains and within-country inequality: The role of functional positioning," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 382-397.

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