Importing Automation and Wage Inequality Through Foreign Acquisitions

Abstract

Is technology or trade driving increases in wage inequality? We propose that technology interacts with trade in the form of foreign direct investments to widen domestic wage inequality. We show that foreign acquisitions of domestic firms disproportionately affect wages for workers who perform tasks sensitive to the technology specialization (software or robotics) of the acquiring firm. Based on Swedish matched employer-employee data covering two decades and staggered difference-in-differences methods we find wages to decline by up to 5.2% annually over an eight-year post period. Our results suggest that a trade policy aimed at attracting foreign companies with high technological capabilities can help countries advance technologically, but this may come at the cost of increased domestic wage inequality.

Keywords: Foreign Direct Investments, Automation, Inequality, AI, Robots, Technology, Trade, Mergers and Acquisitions, Multinational firms, Wages.

JEL Classification: F23, G34, J30, R10.