FDI Effects on the Labor Market of Host Countries


Galina Hale

Mingzhi Xu

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2016-25 | September 1, 2016

This paper surveys literature on impact of foreign direct investments (FDI) on host country’s labor market, including employment, wages, labor productivity, skill premium, and inequality. Meta-analysis of empirical findings suggests that there is solid consensus with respect to wages: in both developing and developed countries FDI leads to higher wages in target firms and industries. Majority of the papers also find positive productivity spillovers as well as increase in skill premium as a result of FDI, especially in developing economies. We analyze all the findings together to address possible mechanisms of FDI effects on labor in target firms, in competing firms, and in vertically related firms. We present a stylized model that is consistent with many empirical regularities found in meta-analysis of empirical literature.

Article Citation

Hale, Galina, and Mingzhi Xu. 2016. “FDI Effects on the Labor Market of Host Countries,” Federal Reserve Bank of San Francisco Working Paper 2016-25. Available at https://doi.org/10.24148/wp2016-25