The Asymmetric Effect of Foreign Direct Investment on the Net Average Wages of Southeastern European Countries

Kurtović, Safet and Maxhuni, Nehat and Halili, Blerim and Krasniqi, Bujar (2021): The Asymmetric Effect of Foreign Direct Investment on the Net Average Wages of Southeastern European Countries.

Abstract

There is a widespread belief in transition and growing economies that the relationship between FDI and wages is symmetrical. On the other hand, the problem of the nonlinear impact of FDI on wages has remained insufficiently explored. Therefore, this paper aims to determine whether there is an asymmetric effect of FDI stock on the net average wages within the eight SEE (Southeastern European countries) economies. We used the nonlinear autoregressive distributed lag (NARDL) and as well on the annual data for the period from 2000 to 2018. We found that there is an asymmetric impact of FDI stock on the net average wages of Bulgaria and Slovenia. In addition, we found that the symmetric effect is stronger compared to the asymmetric effect that the FDI stock has on the net average wages of Bulgaria, N. Macedonia, Montenegro, Serbia and Slovenia. Finally, we found that productivity, employment and education significantly affect solely Slovenia's net average wages.

• Item Type: MPRA Paper
• Language: English
• Keywords: symmetry, asymmetry, wages, productivity, employment
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs

References

Aitken BJ, Harrison AE, Lipsey RE. 1996. Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States. Journal of International Economics 40:3-4, 345-371. http://dx.doi.org/10.1016/0022-1996(95)01410-1 Almeida KR. 2007. The Effects of Foreign Owned Firms on the Labor Market. Journal of International Economics 71:1, 75-96, https://doi.org/10.1016/j.jinteco.2006.10.001 Almeida KR, Lince de Faria M. 2014. The Wage Returns to On-the-Job Training: Evidence from Matched Employer-Employee Data. IZA Discussion Paper No. 8314, Bonn, Germany. Axarloglou K, Pournarakis M. 2007. Do All Foreign Direct Investment Inflows Benefit the Local Economy? The World Economy, 30:3, 424–445. DOI: 10.1111/j.1467-9701.2006.00824.x Baldwin RE. 1995. The Effects of Trade and Foreign Direct Investment on Employment and Relative Wages. NBER Working Paper 5037, Cambridge, MA. Bernard BA, Sjoholm F. 2003. Foreign owners and plant survival. NBER Working Paper 10039, Cambridge,MA. Blecker R 1996. The New Economic Integration: Structural Models of North-South Trade and Investment Liberalization. Structural Change and Economic Dynamics 7: 3, 321-45. https://doi.org/10.1016/S0954-349X(96)00053-7 Bornschier V, Chase-Dunn C. 1985. Transnational Corporations and Underdevelopment. Praeger Publishier, New York. Bowles S, Gintis H. 1993. The Revenge of Homo Economicus: Contested Exchange and the Revival of Political Economy. The Journal of Economic Perspectives 7:1, 83-102. DOI: 10.1257/jep.7.1.83 Decreuse B, Maarek P. 2015. FDI and the Labor Share in Developing Countries: A Theory and Some Evidence. Annals of Economics and Statistic/Annales D’Economie et de Statistique 119/120, 289-319. Doi:10.15609/annaeconstat2009.119-120.289. Mello LR. 1999. Foreign Direct Investment‐Led Growth: Evidence from Time Series and Panel Data. Oxford Economic Papers 51:1, 133‐151. https://doi.org/10.1093/oep/51.1.133 Diaconu ML, Sterbuleac D. 2017. FDI and Labour Market: Empirical Evidence from the States That Joined the European Union in 2004. Alexandru Ioan Cuza University, CES Working Papers 9,Centre for European Studes. Dixon WJ, Boswell T. 1996. Dependency, Disarticulation, and Denominator Effects: Another Look at Foreign Capital Penetration. American Journal of Sociology 102:2, 543–562. https://doi.org/10.1086/230956 Fabbri F, Haskel J, Slaughter JM. 2003. Does nationality of ownership matter for labor demands? Journal of the European Economic Association 3: 2-3, 698–707. Retrived from http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=8792FB54B752044BC07258C90BFB1D5E?doi=10.1.1.483.9934&rep=rep1&type=pdf. Faggio G. 2003. Foreign Direct Investment and Wages in Central and Eastern Europe. Flowenla Discussion Paper 10, Hamburg Institute of International Economics. Feenstra CR, Hanson HG. 1997. Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras. Journal of International Economics 42:3-4, 371-393. https://doi.org/10.1016/S0022-1996(96)01475-4 Ge Y. 2006. The Effect of Foreign Direct Investment on the Urban Wage in China: An Empirical Examination. Urban Studies 43: 9, 1439-1450. https://doi.org/10.1080/00420980600831627 Girma S, Greenaway D, Wakelin K. 1999. Wages, Productivity and Foreign Ownership in UK Manufacturing. University of Nottinghama, Research paper 99/14, Centre for Research on Globalisation and Labour Markets, School of Economics. Goh SK, Wong NK. 2014. Could Inward FDI Offset the Substitution Effect of Outward FDI on Domestic Investment? Evidence From Malaysia. Prague Economic Papers 4, 413-425. doi: 10.18267/j.pep.491 Harrison EA, Scorse J. 2005. Do foreign-owned firms pay more? Evidence from the Indonesian manufacturing sector 1990-99. Working Paper No. 98, International Labour Office, Geneva. Heyman F, Sjöholm F, Tingvall GP. 2007. Is There Really a Foreign Ownership Wage Premium? Evidence from Matched Employer Employee Data. Journal of International Economics 73:2, 355-376. https://doi.org/10.1016/j.jinteco.2007.04.003 Javorcik SB. 2015. Does FDI Bring Good Jobs to Host Countries? World Bank Research Observer 30:1, 74 – 94. doi:10.1093/wbro/lku010 Kato-Vidal LE. 2013. Foreign Investment and Wages: A Crowding-Out Effect in Mexico. Latinamerican Journal of Economics 50: 2, 209-231. doi 10.7764/LAJE.50.2.209 Kurtovic S, Talović S, Dacić L. 2015. Foreign Direct Investment and Net Wages: The Case of Western Balkan Countries. British Journal of Economics, Finance and Management Sciences 10:2, 130-156. http://www.ajournal.co.uk/EFpdfs/EFvolume10(2)/EFVol.10%20(2)%20Article%206.pdf Kurtović S, Maxhuni N, Halili B, Talović S. 2020a. The Determinants of FDI Location Choice in the Western Balkan Countries. Post-Communist Economies 32: 8, 1089-1110. Doi:10.1080/14631377.2020.1722584 Kurtović S, Maxhuni N, Halili B, Talović S. 2020b. Asymmetric exchange rate pass-through into import prices of Slovenia's manufacturing sector. International Journal of Finance and Economics 1-25. DOI:10.1002/ijfe.2033 Kurtović S, Halili B, Maxhuni N. 2017. Bilateral Trade Elasticity of Serbia and Her Trading Partners. Review of Economics/Jahrbuch fur Wirtschaftswissenschaften 68:3: 181-204. doi: https://doi.org/10.1515/roe-2017-0012 Lipsey ER. 2002. Home and host country effects of FDI. NBER Working Paper 9293, Cambridge, MA. Lipsey RE, Sjöholm F. 2004. Foreign Direct Investment, Education, and Wages in Indonesian Manufacturing. Journal of Development Economics 73, 415–22. DOI: 10.1016/j.jdeveco.2002.12.004 Majid N. 2004. What is the Effect of Trade Openness on Wages? Employment Strategy Papers No. 2004-18, International Labor Office. Mehmet O, Tavakoli A. 2003. Does Foreign Direct Investment Cause a Race to the Bottom? Journal of the Asia Pacific Economy 8: 2, 133-156. DOI: 10.1080/1354786032000074712 Mutascu IM, Fleischer AM. 2010. A VAR Analysis of FDI and Wage: The Romania's Case. International Journal of Economic Sciences and Applied Research 3: 2, 41-56. https://www.econstor.eu/bitstream/10419/66619/1/659465280.pdf Nguyena DTH, Suna S, Rabiul Alam Beg ABM. 2019. How does FDI Affect Domestic Firms Wages? Theory and Evidence from Vietnam. Applied Economics 51:49, 5311-5327. https://doi.org/10.1080/00036846.2019.1610717 Onaran Ö, Stockhammer E. 2008. The Effect of FDI and Foreign Trade on Wages in the Central and Eastern European Countries in the Post-transition era: A sectoral Analysis for the Manufacturing Industry. Structural Change and Economic Dynamics 19:1, 66-80. https://doi.org/10.1016/j.strueco.2007.11.003 Pesaran MH, Shin Y, Smith RJ. 2001. Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics 16:3, 289–326. https://doi.org/10.1002/jae.616 Ramasamy B, Yeung M. 2005. The Causality Between Stock Returns And Exchange Rates: Revisited. Australian Economic Papers 44:2, 162-169. https://doi.org/10.1111/j.1467-8454.2005.00257.x Ruane F, Uğur A. 2004. Foreign Direct Investment And Host Country Wages: New Evidence From Irish Plant Level Panel Data. The Institute for International Integration Studies, Discussion Paper Series iiisdp029, IIIS. Shin Y, Yu B, Greenwood-Nimmo M. 2014. Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In: Sickles RH, Horrace W. (Eds.) Festschrift in Honor of Peter Schmidt. New York, Springer. https://doi.org/10.1007/987-1-4899-8008-3_9 Tintin C. 2012. The Effect of Foreign Direct Investment on Labor Income: Evidence from OECD countries. International Journal of Economics and Finance Studies 4:1, 61-60. http://static.dergipark.org.tr:8080/article-download/0979/2850/d899/imp-JA53KA73TR-0.pdf? Accessed 12 March 2020 Vijaya RM, Kaltani L. 2007. Foreign Direct Investment and Wages: A Bargaining Power Approach. Journal of World-Systems Research 3: 1, 83-95. https://doi.org/10.5195/jwsr.2007.361 Waldkirch A. 2010. The Effects of Foreign Direct Investment in Mexico since NAFTA. The World Economy 33:5, 710-745. DOI: 10.2139/ssrn.1115300