Does Plant Size Matter? Differential Effects of Foreign Direct Investment on Wages and Employment in Indian Manufacturing

29 Pages Posted: 28 Mar 2018

See all articles by Shruti Sharma

Shruti Sharma

City University of New York - Department of Social Sciences

Date Written: March 27, 2018

Abstract

This paper examines the differential effects, based on the size of the plant, of industry-level foreign direct investment (FDI) on plant-level employment and the wages of skilled and unskilled workers in India's manufacturing sector. On average, there are strong positive differential effects of increased inward-level FDI for large plants relative to small and average-sized plants in terms of employment and the average wages of both skilled and unskilled workers. Small plants experience negative effects from inward FDI, which can be explained by intra-industry reallocation of output from smaller to larger plants. After conducting a regional analysis, I find positive spillovers to small plants in Indian states that receive large and persistent flows of FDI. This suggests that a critical mass of FDI is necessary for small plants to experience positive spillover effects.

Keywords: foreign direct investment, skill, spillovers, wages, workers

JEL Classification: D22, F62, J24, J31

Suggested Citation

Sharma, Shruti, Does Plant Size Matter? Differential Effects of Foreign Direct Investment on Wages and Employment in Indian Manufacturing (March 27, 2018). Asian Development Review 35:1. Available at SSRN: https://ssrn.com/abstract=3150625

Shruti Sharma (Contact Author)

City University of New York - Department of Social Sciences ( email )

695 Park Avenue
New York, NY 10021
United States

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