Multinational enterprises and wage costs: vertical FDI revisited

This study explores how wage costs for high-skilled and less-skilled labor in host countries affect the level of affiliate activities conducted by foreign MNEs. We find support for vertical FDI, in the sense that more FDI is conducted in countries where less-skilled labor is relatively cheap. In add...

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Published in:Journal of international economics 2005-12, Vol.67 (2), p.446-470
Main Authors: Braconier, Henrik, Norbäck, Pehr-Johan, Urban, Dieter
Format: Article
Language:English
Subjects:
Costs
Empirical research
FDI
Foreign direct investment
Foreign investment
International economics
International investment
International trade
Labour costs
Multinational corporations
Multinational enterprises
Multinational firms
Skilled-wage cost premium
Studies
U.S.A
Wages & salaries
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description This study explores how wage costs for high-skilled and less-skilled labor in host countries affect the level of affiliate activities conducted by foreign MNEs. We find support for vertical FDI, in the sense that more FDI is conducted in countries where less-skilled labor is relatively cheap. In addition, we find that skilled-wage cost premia also affect FDI activities previously associated with horizontal FDI, i.e. local affiliate sales. Consequently, the potential effects of relative wage costs on MNE activities are large. Rough calculations suggest that more than 20 percent of US affiliate sales in 1998 can be attributed to skilled-wage cost premia.
doi_str_mv 10.1016/j.jinteco.2004.08.011
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source International Bibliography of the Social Sciences (IBSS); ScienceDirect Freedom Collection
subjects Costs
Empirical research
FDI
Foreign direct investment
Foreign investment
International economics
International investment
International trade
Labour costs
Multinational corporations
Multinational enterprises
Multinational firms
Skilled-wage cost premium
Studies
U.S.A
Wages & salaries
title Multinational enterprises and wage costs: vertical FDI revisited
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