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Foreign direct investment and wages in domestic firms in Ireland: Productivity spillovers versus labour-market crowding out

Author

Listed:
  • Frank Barry
  • Holger Gorg
  • Eric Strobl
Abstract
There is a large literature on the positive spillovers frequently thought to be associated with inward foreign direct investment. Aitken et al. (1996) identify several cases, however, where inward FDI appears to have reduced wages in domestic firms. They suggest that this might arise either because foreign firms increase the degree of product-market competition that domestic firms face, or because they poach the best workers from domestic firms. We concentrate on the second effect, arguing that the first is unlikely to arise in the Irish case to which our data pertain. In a theoretical section we show that the labour-market poaching effect cannot generate the results postulated if labour markets are competitive and production functions are of the Cobb-Douglas variety, but that it can arise if production functions display higher elasticities of substitution. In an empirical section based on a sample of larger Irish firms we show that, consistent with our theoretical model, foreign presence has different effects on wages and productivity in domestic exporting and non-exporting establishments.

Suggested Citation

  • Frank Barry & Holger Gorg & Eric Strobl, 2005. "Foreign direct investment and wages in domestic firms in Ireland: Productivity spillovers versus labour-market crowding out," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 67-84.
    • Handle: RePEc:taf:ijecbs:v:12:y:2005:i:1:p:67-84
    DOI: 10.1080/1357151042000323102
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    References listed on IDEAS

    as
    1. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November.
    2. Holger Görg & Eric Strobl, 2016. "Multinational Companies, Technology Spillovers and Plant Survival," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 16, pages 289-303, World Scientific Publishing Co. Pte. Ltd..
    3. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
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    23. Barrell,Ray & Pain,Nigel (ed.), 1999. "Innovation, Investment and the Diffusion of Technology in Europe," Cambridge Books, Cambridge University Press, number 9780521620871, September.
    24. Salvador Barrios, "undated". "Foreign Direct Investment Productivity Spillovers. Evidence From the Spanish Experience," Studies on the Spanish Economy 86, FEDEA.
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    More about this item

    Keywords

    FDI; Spillovers; Labour Market; Crowding Out; JEL Classifications: F23; J23; J31;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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