Working Paper Series
Foreign Direct Investment, Capital Formation and Labour Costs: Theory and Evidence for Germany
Abstract: This paper shows that the liberalisation of foreign direct
investment (FDI) tends to make the effect of labour costs on domestic
investment and labour demand more negative. Using data from Germany, it
then provides evidence that is consistent with this view. First, high unit
labour costs increase FDI outflows and lower FDI inflows. Second, the
effect of unit labour costs on domestic manufacturing investment was more
negative in the high-FDI 1980s than in the low-FDI 1970s, and this change
was concentrated in high-FDI industries. The implied effect on long-run
labour demand is substantial.
Keywords: INVESTMENTS; LABOUR MARKET; (follow links to similar papers)
JEL-Codes: F33; J21; O16; (follow links to similar papers)
31 pages, September 1996
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