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Foreign Direct Investment and Wages in Indonesian Manufacturing

30 Pages Posted: 17 May 2001 Last revised: 22 Oct 2010

Robert E. Lipsey

National Bureau of Economic Research (NBER) at New York (Deceased)

Fredrik Sjoholm

Stockholm School of Economics - Department of Economics

Date Written: May 2001

Abstract

This paper asks two types of questions. One is about the behavior of foreign-owned firms in Indonesian labor markets and the other is about the effect of the presence of foreign-owned firms on Indonesian wages. We ask first whether foreign-owned plants pay a higher price for labor, that is, more than locally-owned plants for workers of a given quality, as we can measure it. We then ask whether foreign-owned plants pay a higher price for labor given the characteristics of the plants such as their size, industry, and location. The answer is that foreign firms do pay a higher price, and even a higher price given their plant characteristics. The second set of questions is whether a larger presence of foreign-owned plants results in higher wages in locally-owned plants and overall. Higher foreign presence leads to higher wages in locally-owned plants. Since the foreign plants also pay higher wages than locally-owned ones, the two factors together mean that higher foreign presence raises the general wage level in a province and industry.

Suggested Citation

Lipsey, Robert E. and Sjoholm, Fredrik, Foreign Direct Investment and Wages in Indonesian Manufacturing (May 2001). NBER Working Paper No. w8299. Available at SSRN: https://ssrn.com/abstract=270369

Robert E. Lipsey (Contact Author)

National Bureau of Economic Research (NBER) at New York (Deceased)

Fredrik Sjoholm

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

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