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Fragmentation, Efficiency‐Seeking FDI, and Employment

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  • Carsten Eckel
Abstract
The paper examines the impact of efficiency‐seeking FDI on factor prices, employment, and output. The analysis shows that when transportation costs fall, companies start relocating labor‐intensive production processes to low‐wage countries. But this does not necessarily hurt workers in the high‐wage country. The paper demonstrates an employment‐depressing “relocation effect” and an employment‐enhancing “efficiency effect.” Employment is more likely to rise if the internationality of production is high and if the supply of capital is elastic. Furthermore, the model is capable of explaining intraindustry cross‐hauling.

Suggested Citation

  • Carsten Eckel, 2003. "Fragmentation, Efficiency‐Seeking FDI, and Employment," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 317-331, May.
    • Handle: RePEc:bla:reviec:v:11:y:2003:i:2:p:317-331
    DOI: 10.1111/1467-9396.00385
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    References listed on IDEAS

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    1. Blomstrom, Magnus & Fors, Gunnar & Lipsey, Robert E, 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," Economic Journal, Royal Economic Society, vol. 107(445), pages 1787-1797, November.
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    Cited by:

    1. Yousafzai, Arshad Hayat, 2014. "Exploring the Causality and Co-integration Relationship between FDI, GDP and Employment: A Case of Czech Republic," MPRA Paper 54827, University Library of Munich, Germany.
    2. Davies, Ronald B., 2005. "Fragmentation of headquarter services and FDI," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 61-79, March.
    3. Fabian Barthel & Matthias Busse & Robert Osei, 2011. "The Characteristics and Determinants of FDI in Ghana," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 23(3), pages 389-408, July.
    4. Chiara Franco & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "Why do firms invest abroad? An analysis of the motives underlying Foreign Direct Investments," Department of Economics Working Papers 0817, Department of Economics, University of Trento, Italia.
    5. Bahar Bayraktar-Sağlam & Selin Sayek Böke, 2017. "Labor Costs and Foreign Direct Investment: A Panel VAR Approach," Economies, MDPI, vol. 5(4), pages 1-23, September.

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