Wage Inequality, Linkages and FDI

29 Pages Posted: 1 Feb 2010

See all articles by Nigel L. Driffield

Nigel L. Driffield

Aston University - Aston Business School

Sourafel Girma

Nottingham University Business School

Michael Henry

Aston University

Karl Taylor

University of Sheffield - Department of Economics

Abstract

This paper extends the existing literature on FDI and wage inequality. We do this in two ways. Firstly, we incorporate more precise measures of inward investment into the model, by allowing for differences in the effects between horizontal and vertical FDI. Secondly, after establishing the effects that inward investment has on wage inequality, we then analyse the reasons for this in terms of the wages paid to skilled and unskilled workers, and the effect that inward investment has on this. We illustrate the important differences that horizontal and vertical FDI have on both wages and wage inequality, and the importance of allowing for regional differences in the results. FDI nationally tends to increase wage inequality, while the local, effects are opposite. FDI into assisted areas tends to increase wage inequality nationally, when the MNEs purchase inputs in the local region.

Keywords: wage inequality, FDI spillovers, backwards and forwards linkages

JEL Classification: F21, F23, J31

Suggested Citation

Driffield, Nigel L. and Girma, Sourafel and Henry, Michael and Taylor, Karl B., Wage Inequality, Linkages and FDI. IZA Discussion Paper No. 4722. Available at SSRN: https://ssrn.com/abstract=1545149

Nigel L. Driffield (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

HOME PAGE: http://www.abs.aston.ac.uk/newweb/staff/Default.asp#E&S

Sourafel Girma

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/~lizsmg/

Michael Henry

Aston University ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom

HOME PAGE: http://www.abs.aston.ac.uk/newweb/staff/detail.asp/sfldStaffID=A0000543

Karl B. Taylor

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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