Inward Foreign Direct Investment and Inter-Industry Wage Differentials in U.S. Manufacturing Industries

Abstract

This study investigates the effects of inward foreign direct investment on local workers' wages by focusing on U.S. manufacturing industries for the period from 1987 to 1992. I use two different approaches to control individual characteristics and to implement estimation in this study: (1) One-step estimation with industry - state level of inward foreign direct investments, and (2) Two-step industry characteristic regression approach. I find that the higher presence of foreign firms is associated with higher local wages after workers' observable characteristics are controlled for in cross-section analysis. However, I did not find a positive association between inward FDI activities and industry wage premiums within industry in a panel data analysis. In this analysis, inward FDI activities appeared to be negatively associated with worker's industry wage premium for workers with more than high a school education.