Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras / Robert C. Feenstra, Gordon H. Hanson.

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Feenstra, Robert C

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5122.Publication details: Cambridge, Mass. National Bureau of Economic Research 1995.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by multinationals from the United States and other Northern countries, is to shift production in Mexico towards relatively skill-intensive goods thereby increasing the relative demand for skilled labor. We study the impact of foreign direct investment (FDI) on the share of skilled labor in total wages in Mexico using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988. We measure the state- level growth in FDI using data on the regional activities of foreign- owned assembly plants. We find that growth in FDI is positively correlated with the relative demand for skilled labor. In the regions where FDI has been most concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor share of total wages that occurred during the late 1980s.

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Previous	nber w5119 The Effect of Prison Population Size on Crime Rates: Evidence From Prison Overcrowding Litigation /	nber w5120 Capital Mobility, Fiscal Policy and Growth under Self-Financing of Human Capital Formation /	nber w5121 Foreign Investment, Outsourcing and Relative Wages /	nber w5122 Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras /	nber w5123 Employment, Unemployment, and Problem Drinking /	nber w5124 The Role of Pre-Market Factors in Black-White Wage Differences /	nber w5125 Capital Utilization and Returns to Scale /	Next

May 1995.

In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by multinationals from the United States and other Northern countries, is to shift production in Mexico towards relatively skill-intensive goods thereby increasing the relative demand for skilled labor. We study the impact of foreign direct investment (FDI) on the share of skilled labor in total wages in Mexico using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988. We measure the state- level growth in FDI using data on the regional activities of foreign- owned assembly plants. We find that growth in FDI is positively correlated with the relative demand for skilled labor. In the regions where FDI has been most concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor share of total wages that occurred during the late 1980s.