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RESEARCH PRODUCT
Vertical FDI Revisited
Pehr-johan NorbäckDieter M. UrbanDieter M. UrbanHenrik Braconiersubject
Host countryMultinational corporationmedia_common.quotation_subjectFactor endowmentEconomicsWageProduction (economics)Demographic economicsPercentage pointForeign direct investmentAffect (psychology)media_commondescription
This study explores how relative skilled-wage premia affect FDI. Contrary to previous studies based on factor endowment differences, we find strong support for vertical FDI, in the sense that more FDI is conducted in countries where unskilled labor is relatively cheap. In addition, we find that relative skill-premia also affect FDI activities that have previously been associated with horizontal FDI, i.e. local affiliate sales. Consequently, the potential effects of changes in the relative wage costs on international production reallocation within MNEs are large. In fact, if not for the 8% rise in the US skilled wage premium relative to the average host country between 1986- 1994, annual US affliate sales abroad in relation to US GDP would have been half a percentage point higher.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2003-01-01 | SSRN Electronic Journal |