Hostname: page-component-76fb5796d-45l2p Total loading time: 0 Render date: 2024-04-25T17:47:03.369Z Has data issue: false hasContentIssue false
  • English
  • Français

Labor Markets and the Demand for Foreign Direct Investment

Published online by Cambridge University Press:  19 July 2010

Sonal S. Pandya
Sonal S. Pandya
Affiliation:
The University of Virginia, Charlottesville. E-mail: spandya@virginia.edu
Get access

Abstract

Existing research on foreign direct investment (FDI) focuses on how politics influences the supply of FDI inflows. In this article I shift focus to the demand for FDI inflows within recipient countries by examining individual preferences for FDI. I argue that FDI preferences are largely a function of FDI's effects on income. FDI raises wages, especially those of skilled labor because foreign firms require more highly skilled labor than their local counterparts. Accordingly, support for FDI should increase with respondents' skills. Using three years of extensive public opinion data from eighteen Latin American countries, I provide robust evidence that preferences are consistent with FDI's effects on income. There is relatively little support for alternate explanations including concerns about job security, opposition to privatization, and the socializing effects of higher education on economic policy preferences.

Type
Research Article
Information
International Organization , Volume 64 , Issue 3 , July 2010 , pp. 389 - 409
Copyright
Copyright © The IO Foundation 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aguiar, Mark, and Gopinath, Gita. 2005. Fire-Sale Foreign Direct Investment and Liquidity Crises. Review of Economics and Statistics 87 (3):439–52.Google Scholar
Aitken, Brian, Harrison, Ann, and Lipsey, Robert E.. 1996. Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States. Journal of International Economics 40 (3–4):345–71.Google Scholar
Alfaro, Laura, Chanda, Areendam, Kalemli-Ozcan, Sebnem, and Sayek, Selin. 2004. FDI and Economic Growth: The Role of Local Financial Markets. Journal of International Economics 64 (1):89–112.Google Scholar
Antràs, Pol. 2003. Firms, Contracts, and Trade Structure. Quarterly Journal of Economics 118 (4):1375–418.CrossRefGoogle Scholar
Baker, Andy. 2005. Who Wants to Globalize? Consumer Tastes and Labor Markets in a Theory of Trade Policy Beliefs. American Journal of Political Science 49 (4):924–38.CrossRefGoogle Scholar
Balistreri, Edward J. 1997. The Performance of the Heckscher-Ohlin-Vanek Model in Predicting Endogenous Policy Forces at the Individual Level. Canadian Journal of Economics 30 (1):1–17.Google Scholar
Berman, Eli, Bound, John, and Griliches, Zvi. 1994. Changes in the Demand for Skilled Labor Within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures. Quarterly Journal of Economics 109 (2):367–97.Google Scholar
Blonigen, Bruce A., Davies, Ronald B., and Head, Keith. 2003. Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment. American Economic Review 93 (3):980–94.Google Scholar
Blonigen, Bruce A., and Figlio, David M.. 2000. The Effects of Foreign Direct Investment on Local Communities. Journal of Urban Economics 48 (2):338–63.Google Scholar
Blonigen, Bruce A., Tomlin, KaSaundra, and Wilson, Wesley W.. 2004. Tariff-Jumping FDI and Domestic Firms' Profits. Canadian Journal of Economics 37:656–77.CrossRefGoogle Scholar
Borensztein, Eduardo, De Gregorio, Jose, and Lee, Jong-Wha. 1998. How Does Foreign Direct Investment Affect Economic Growth? Journal of International Economics 45 (1):115–35.Google Scholar
Branstetter, Lee G., and Feenstra, Robert C.. 2002. Trade and Foreign Direct Investment in China: A Political Economy Approach. Journal of International Economics 58 (2):335–58.Google Scholar
Brown, Drusilla K., Deardorff, Alan V., and Stern, Robert M.. 2003. The Effects of Multinational Production on Wages and Working Conditions in Developing Countries. NBER Working Paper No. 9669. National Bureau of Economic Research: Cambridge, Mass.CrossRefGoogle Scholar
Burgoon, Brian A., and Hiscox, Michael J.. 2008. The Gender Divide over International Trade: Why Do Men and Women Have Different Views About Openness to the World Economy? Working Paper. Available at ⟨http://www.people.fas.harvard.edu/~hiscox/Gender.pdf⟩. Accessed 24 March 2010.Google Scholar
Carr, David L., Markusen, James R., and Maskus, Keith E.. 2001. Estimating the Knowledge-Capital Model of the Multinational Enterprise. American Economic Review 91 (3):693–708.Google Scholar
Chari, Anusha, and Gupta, Nandini. 2008. Incumbents and Protectionism: The Political Economy of Foreign Entry Liberalization. Journal of Financial Economics 88 (3):633–56.Google Scholar
Crystal, Jonathan. 2003. Unwanted Company: Foreign Investment in American Industries. Ithaca, N.Y.: Cornell University Press.Google Scholar
Domínguez, Jorge I. 1982. Business Nationalism: Latin American National Business Attitudes and Behavior toward Multinational Enterprises. In Economic Issues and Political Conflict: U.S.-Latin American Relations, edited by Domínguez, Jorge I., 16–68. London: Butterworth.Google Scholar
Fayerweather, John. 1982. Elite Attitudes About Multinational Firms. In Host National Attitudes Toward Multinational Corporations, edited by Fayerweather, John, 1–43. New York: Praeger.Google Scholar
Feenstra, Robert C., and Hanson, Gordon H.. 1997. Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras. Journal of International Economics 42 (3–4):371–93.Google Scholar
Görg, Holger, and Greenway, David. 2001. Foreign Direct Investment and Intra-Industry Spillovers: A Review of the Literature. Research Paper 2001/37. Globalisation and Labour Markets Programme. University of Nottingham, U.K.Google Scholar
Graham, Edward M. 2000. Fighting the Wrong Enemy: Anti-Global Activists and Multinational Enterprises. Washington, D.C.: Institute for International Economics.Google Scholar
Griffith, Rachel. 1999. Using the ARD Establishment Level Data to Look at Foreign Ownership and Productivity in the United Kingdom. Economic Journal 109 (June):416–42.Google Scholar
Griffith, Rachel, and Simpson, Helen. 2001. Characteristics of Foreign-Owned Firms in British Manufacturing. IFS Working Paper W01/10. Institute for Fiscal Studies, London.Google Scholar
Grossman, Sanford J., and Hart, Oliver D.. 1986. The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. Journal of Political Economy 94 (4):691–719.Google Scholar
Haddad, Mona, and Harrison, Ann. 1993. Are There Spillovers from Direct Foreign Investment? Evidence from Panel Data for Morocco. Journal of Development Economics 42 (1):51–74.Google Scholar
Hainmueller, Jens, and Hiscox, Michael J.. 2006. Learning to Love Globalization: Education and Individual Attitudes Toward International Trade. International Organization 60 (2):469–98.Google Scholar
Hainmueller, Jens, and Hiscox, Michael J.. 2007. Educated Preferences: Explaining Attitudes Towards Immigration in Europe. International Organization 61 (2):399–422.CrossRefGoogle Scholar
Hanson, Gordon H., Mataloni, Raymond J., and Slaughter, Matthew J.. 2003. Vertical Production Networks in Multinational Firms. NBER Working Paper 9723. National Bureau of Economic Research, Cambridge, Mass.Google Scholar
Harrison, Ann. 1996. Determinants and Effects of Direct Foreign Investment in Cote d'Ivoire, Morocco, and Venezuela. In Industrial Evolution in Developing Countries: Micro Patterns of Turnover, Productivity, and Market Structure, edited by Roberts, Mark J. and Tybout, James R., 163–86. Oxford, England: Oxford University Press.Google Scholar
Helpman, Elhanan. 1984. A Simple Theory of International Trade with Multinational Corporations. Journal of Political Economy 92 (3):451–71.Google Scholar
Helpman, Elhanan, Melitz, Marc J., and Yeaple, Stephen R.. 2004. Export Versus FDI with Heterogeneous Firms. American Economic Review 94 (1):300–16.CrossRefGoogle Scholar
Henisz, Witold. 2002. Politics and International Investment: Measuring Risks and Protecting Profits. Cheltham, England: Edward Elgar.Google Scholar
Hiscox, Michael J. 2006. Through a Glass and Darkly: Attitudes Towards International Trade and the Curious Effects of Issue Framing. International Organization 60 (3):755–80.CrossRefGoogle Scholar
Hummels, David, Ishii, Jun, and Yi, Kei-Mu. 2001. The Nature and Growth of Vertical Specialization in World Trade. Journal of International Economics 54 (1):75–96.Google Scholar
Hymer, Stephen H. 1976. The International Operations of National Firms: A Study of Foreign Direct Investment. Cambridge, Mass.: MIT Press.Google Scholar
Iversen, Torben, and Soskice, David. 2001. An Asset Theory of Social Policy Preferences. American Political Science Review 95 (4):875–93.Google Scholar
Jensen, Nathan M. 2003. Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment. International Organization 57 (3):587–616.CrossRefGoogle Scholar
Jones, Ronald W. 1971. A Three-Factor Model in Theory, Trade, and History. In Trade, Balance of Payments, and Growth: Papers in International Economics in Honor of Charles P. Kindleberger, edited by Bhagwati, Jagdish N., Jones, R. W., Mundell, R. A., and Vanek, J., 3–21. New York: Elsevier.Google Scholar
Kang, C. S. Eliot. 1997. U.S. Politics and Greater Regulation of Inward Foreign Direct Investment. International Organization 51 (2):301–33.CrossRefGoogle Scholar
Kaufman, Robert R., and Zuckerman, Leo. 1998. Attitudes Toward Economic Reforms in Mexico: The Role of Political Orientations. American Political Science Review 92 (2):359–75.Google Scholar
Kobrin, Stephen J. 1987. Testing the Bargaining Hypothesis in the Manufacturing Sector in Developing Countries. International Organization 41 (4):609–38.Google Scholar
Li, Quan, and Resnick, Adam. 2003. Reversal of Fortunes: Democracy, Property Rights, and Foreign Direct Investment Inflows to Developing Countries. International Organization 57 (1):175–211.Google Scholar
Lipsey, Robert E. 2002. Home and Host Country Effects of FDI. NBER Working Paper 9292. National Bureau of Economic Research: Cambridge, Mass.Google Scholar
Lipsey, Robert, and Sjöholm, Fredrik. 2002. Foreign Firms and Indonesian Manufacturing Wages: An Analysis with Panel Data. NBER Working Paper 9417. National Bureau of Economic Research: Cambridge, Mass.Google Scholar
Markusen, James R. 1984. Mulitnationals, Multi-Plant Economies, and the Gains from Trade. Journal of International Economics 16 (3–4):205–26.Google Scholar
Mayda, Anna Maria. 2006. Who Is Against Immigration? A Cross-Country Investigation of Individual Attitudes Toward Immigrants. Review of Economics and Statistics 88 (3):510–30.Google Scholar
Mayda, Anna Maria, and Rodrik, Dani. 2005. Why Are Some People (and Countries) More Protectionist Than Others? European Economic Review 49 (6):1393–430.Google Scholar
O'Rourke, Kevin H., and Sinnott, Richard. 2001. The Determinants of Individual Trade Policy Preferences: International Survey Evidence. Brookings Trade Forum:157–206.Google Scholar
Pandya, Sonal S. 2007. Trading Spaces: Political Economy of Foreign Direct Investment Regulation, 1963–2000. Ph.D. diss., Harvard University, Cambridge, Mass.Google Scholar
Pinto, Pablo M., and Pinto, Santiago M.. 2008. The Politics of Investment Partisanship and the Sectoral Allocation of Foreign Direct Investment. Economics & Politics 20 (2):216–54.Google Scholar
Rodrik, Dani. 1995. Political Economy of Trade Policy. In Handbook of International Economics, 3, edited by Grossman, Gene M. and Rogoff, Kenneth, 1457–94. Amsterdam: Elsevier.Google Scholar
Romer, Paul. 1993. Idea Gaps and Object Gaps in Economic Development. Journal of Monetary Economics 32 (3):543–73.Google Scholar
Scheve, Kenneth F. 2004. Public Inflation Aversion and the Political Economy of Macroeconomic Policymaking. International Organization 58 (1):1–34.Google Scholar
Scheve, Kenneth F., and Slaughter, Matthew J.. 2001a. Labor Market Competition and Individual Preferences over Immigration Policy. Review of Economics and Statistics 83 (1):133–45.Google Scholar
Scheve, Kenneth F., and Slaughter, Matthew J.. 2001b. What Determines Individual Trade Policy Preferences? Journal of International Economics 54 (2):267–92.Google Scholar
Scheve, Kenneth F., and Slaughter, Matthew J.. 2004. Economic Insecurity and the Globalization of Production. American Journal of Political Science 48 (4):662–74.Google Scholar
Sembenelli, Alessandro, and Siotis, Georges. 2008. Foreign Direct Investment and Mark-up Dynamics: Evidence from Spanish Firms. Journal of International Economics 76 (1):107–15.Google Scholar
Stokes, Susan C. 2001. Mandates and Democracy: Neoliberalism by Surprise in Latin America. Cambridge: Cambridge University Press.Google Scholar
Tomz, Michael, Wittenberg, Jason, and King, Gary. 2003. CLARIFY: Software for Interpreting and Presenting Statistical Results. Version 2.1. Available at ⟨http://www.jstatsoft.org/v08/i01⟩. Accessed 24 March 2010.Google Scholar
Vernon, Raymond. 1971. Sovereignty at Bay: The Multinational Spread of U.S. Enterprises. New York: Basic Books.Google Scholar
World Bank. 2003. Global Development Finance, 1. Washington, D.C.: World Bank.Google Scholar
Yi, Kei-Mu. 2003. Can Vertical Specialization Explain the Growth of World Trade? Journal of Political Economy 111 (1):52–102.Google Scholar