Did FDI increase wage inequality in transition economies?

Abstract

Purpose of this paper-The last two decades have been characterised by a rise in income and wage inequality in a wide range of countries, including European transition countries. The rise in globalisation is one major factor explaining this increasing wage inequality. International trade and FDI have increased significantly since the beginning of transition and this paper focuses onexamines whether FDI plays an important role in explaining the pattern of wage inequality in selected transition countries. Design/methodology/approach-A crosscountry empirical investigation has been conducted using two alternative measures of wage inequality: the Gini coefficient and the Theil index. Several model specifications and estimation strategies have been employed to obtain consistent estimates and to check for the robustness of the results. Findings-The results indicate that a rising share of inward FDI in GDP increased wage inequality in transition economies, though its overall effect was relatively small. Considering the long run, there is no clear evidence of a concave relationship between FDI and wage inequality, which may be a consequence of the relatively low high levels of FDI in manyost transition countries. Practical implications-Inwards FDI has made a small contribution to increasing wage inequality in European transition economies. However, its overall beneficial effects on labour markets in these countries suggests that rather than restricting FDI governments should target increasing the supply of skilled labour. What is original/value of paper-This new empirical evidence supports the hypothesis that an increased inward FDI stock as a share of GDP increases wage inequality in transition economies, however this relationship ismay be a complex one. Differences in average wages, wage differentials, employment shares of skilled workers and relative size of the foreignowned sector are all likely to be important for the behaviour of wage inequality.

Trade, FDI and income inequality: empirical evidence from CIS

“…Later on, secondary education adds to decline in income inequality. Control variables, namely, GDP, secondary school enrollment and services sector were used, and GDP was found negatively significant consistent with the work of ZulfiuAlili and Adnett (2018) in models 3 and 5. Inflation was also found positively significant, except for model 3 in which it was negative and significant.…”

Foreign Direct Investments and Labour Force Indicators in Transition Economies: Linear Mixed-Effects Models Impact Analysis

“…FDI inward increases wage inequality in transition economies (Figini -Gorg 2011;Milanovic -Ersado 2008), reserving the complexity of the model and possible presence of non-linear effect (Alili 2015). The uncertain impact of FDI on the Gini index found here is in line with the findings of Alili and Adnett (2018).…”

“…Besides, there is empirical evidence that social well-being is highly determined by personal perception of institutional environment (Mrva 2020). Alili and Adnett (2018) stress that the last twenty years have been characterised by the rise in globalisation that provoked a growth in income and wage inequality in European transition countries. Applying a cross-country empirical investigation, these authors attempted to estimate whether FDI affect wage inequality in transition economies.…”

“…Therefore, the motives for measuring the impact of FDI inward flow on workers' indicators are several. Transition economies are highly dependent on FDI inward flow (Zugic 2010;Bartlett 2007;Alili -Adnett 2018). High dependency on FDI inward flow when it comes to labour force is reflected on both economic and social aspects of life.…”

“…Instead of other different classifications based explicitly on gross national income (GNI) or income level of the country, the authors rely on the above classification for this research. As for empirical evidence, the most critical effect of the FDI inward flow so far occurs in transition economies (Stanisic 2008;Alili -Adnett 2018).…”