Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras

41 Pages Posted: 30 Aug 2000 Last revised: 30 Jul 2010

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Date Written: May 1995

Abstract

In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by multinationals from the United States and other Northern countries, is to shift production in Mexico towards relatively skill-intensive goods thereby increasing the relative demand for skilled labor. We study the impact of foreign direct investment (FDI) on the share of skilled labor in total wages in Mexico using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988. We measure the state- level growth in FDI using data on the regional activities of foreign- owned assembly plants. We find that growth in FDI is positively correlated with the relative demand for skilled labor. In the regions where FDI has been most concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor share of total wages that occurred during the late 1980s.

Suggested Citation

Feenstra, Robert C. and Hanson, Gordon H., Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras (May 1995). NBER Working Paper No. w5122. Available at SSRN: https://ssrn.com/abstract=225187

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

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Davis, CA 95616-8578
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National Bureau of Economic Research (NBER)

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Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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