How does FDI affect domestic firms’ wages? Theory and evidence from Vietnam

Nguyen, Dao Thi Hong, Sun, Sizhong, and Beg, A. B. M. Rabiul Alam (2019) How does FDI affect domestic firms’ wages? Theory and evidence from Vietnam. Applied Economics, 51 (49). pp. 5311-5327.

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This paper explores the role of inward foreign direct investment (FDI) as a determinant of domestic firms’ wages, namely wage spillovers. We first construct a theoretical model to demonstrate that the presence of FDI firms affects domestic firms’ expected average wages via productivity spillovers and a cut-off capability. We then estimate FDI-induced wage spillovers by employing IV-GMM estimator with a five-year panel dataset of a growing service industry in Vietnam. Despite FDI firms on average pay 2.25 times that of domestic firms, they put a downward pressure on domestic firms’ wages. A one percent increase in FDI presence causes domestic firms to cut average wages by 2.03 percent. The estimations also find that firm-specific features are attributable to significant differences in their wages as well as FDI-linked wage spillovers.

Item ID: 62366
Item Type: Article (Research - C1)
ISSN: 1466-4283
Keywords: FDI, wage spillovers, IV-GMM, service industry, Vietnam
Copyright Information: © 2019 Informa UK Limited, trading as Taylor & Francis Group
Date Deposited: 28 Feb 2020 05:53
FoR Codes: 38 ECONOMICS > 3802 Econometrics > 380202 Econometric and statistical methods @ 35%
38 ECONOMICS > 3801 Applied economics > 380110 International economics @ 35%
38 ECONOMICS > 3801 Applied economics > 380118 Urban and regional economics @ 30%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9101 Macroeconomics > 910107 Macro Labour Market Issues @ 100%
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