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FDI, Labor Market and Welfare: How Inequality Navigates Welfare Loss?

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Abstract

A significant growth of foreign direct investment (FDI) over the years led to substantial changes in the labor markets of host and home countries. From a host country perspective, the FDI happens to have greater impact on the labor markets conditions where it perpetuates the skewed labor market outcomes and steady income growth. Toward this end, this study explores the welfare implications of FDI on labor market for a panel of 64 countries during the period 1991–92 to 2014–15. We estimate the effect of FDI on labor market outcomes and welfare loss in labor markets by augmenting the welfarist approach of Atkinson (1970) and estimate the loss function. The results reveal that FDI impacts labor markets positively for both developed and developing countries. However, the long-run effects of FDI show a significant difference among the sectoral labor market measures leading to unequal outcomes. On estimating the loss function, we observe a substantial loss of welfare in income and labor market outcomes with a higher magnitude in middle and high-income countries.

Part of this work was carried out at Department of Humanities and Social Sciences, Indian Institute of Technology Madras, India, as a part of the Post-Doctoral Fellowship.

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Notes

  1. 1.

    A comprehensive survey on the FDI–labor markets nexus through host countries perspective can be traced in Hale and Xu (2016).

  2. 2.

    Jensen’s inequality measure relates the value of a convex function of an integral to the integral of the convex function. It is central in the derivation of the expectation–maximization algorithm and thereby proof of consistency for the maximum likelihood estimators.

  3. 3.

    For further explanation, refer Antràs et al. (2017).

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Acknowledgements

An earlier version of this paper was presented at the 13th Annual Conference of the Forum for Global Knowledge Sharing. We thank Alakh Sharma and the conference participants for the useful comments and suggestions.

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Authors and Affiliations

  1. Department of Economics, Birla Institute of Technology (BITS) Pilani, Goa Campus, India

    Arfat Ahmad Sofi

  2. Department of Humanities and Social Sciences, Indian Institute of Technology Madras, Chennai, India

    Subash Sasidharan

Authors
  1. Arfat Ahmad Sofi
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  2. Subash Sasidharan
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Correspondence to Arfat Ahmad Sofi .

Editor information

Editors and Affiliations

  1. Madras School of Economics, Chennai, Tamil Nadu, India

    N. S. Siddharthan

  2. Department of Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, Maharashtra, India

    K. Narayanan

Appendix

Appendix

See Table 8.

Table 8 List of sample countries
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Sofi, A.A., Sasidharan, S. (2020). FDI, Labor Market and Welfare: How Inequality Navigates Welfare Loss?. In: Siddharthan, N., Narayanan, K. (eds) FDI, Technology and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-15-3611-3_10

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