FDI and the labor share in developing countries: A theory and some evidence

Bruno Decreuse (1) , Paul Maarek (2)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 THEMA - Théorie économique, modélisation et applications

We address the effects of FDI on the labor share in developing countries. Our theory relies on the impacts of FDI on wage and labor productivity in a frictional labor market. FDI has two opposite effects on the labor share: a negative force originated by technological advance, and a positive force due to increased labor market competition between …firms. We test this theory on aggregate panel data through …fixed effects and IV estimates. We examine the relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. We show that FDI has decreased the labor share in the host countries of our dataset. This impact amounts to between 10% to 20% of the mean labor share in our sample.

Keywords: Economie quantitative

Domains: Humanities and Social Sciences; Humanities and Social Sciences; Economics and Finance

Bruno Decreuse, Paul Maarek. FDI and the labor share in developing countries: A theory and some evidence. Annals of Economics and Statistics, 2015, Special issue on health and labour economics (119-120), pp.289--319. ⟨10.15609/annaeconstat2009.119-120.289⟩. ⟨hal-01456114⟩