Working Paper Series
Henrik Braconier, Pehr-Johan Norbäck
Vertical FDI Revisited
() and Dieter Urban
Abstract: This study explores how relative skilled-wage premia
affect FDI. Contrary to previous studies based on factor endowment
differences, we find strong support for vertical FDI, in the sense that
more FDI is conducted in countries where unskilled labor is relatively
cheap. In addition, we find t hat relative skill-premia also affect FDI
activities that have previously been associated with horizontal FDI, i.e.
local affiliate sales. Consequently, the potential effects of changes in
the relative wage costs on international production reallocation within
MNEs are large. In fact, if not for the 8% rise in the US skilled wage
premium relative to the average host country between 1986-1994, annual US
affiliate sales abroad in relation to US GDP would have been half a
percentage point higher.
Keywords: Multinational Firms; Skilled-Wage Premium; New Trade Theory; (follow links to similar papers)
JEL-Codes: F13; F23; J31; (follow links to similar papers)
46 pages, April 26, 2002
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