Integration, Foreign Direct Investment and Labour Markets : Microeconomic Perspectives

Foreign direct investment (FDI) has grown far more rapidly than trade during the last two decades. As with the other prominent features of globalization, FDI is controversial. The impact of FDI on labour markets has been of growing concern, in particular for source countries. The deterioration of labour market conditions for unskilled workers in many OECD countries during the 1980s and 1990s was a primary catalyst for the concern. With regard to its impact on labour markets, FDI may have effects that, at least in the short and medium run, may well dwarf the effects of trade and immigration. In this paper, we review the economic theories and econometric evidence which purport to explain various aspects of the impact of FDI on labour markets. The emphasis is on two partial equilibrium models which, respectively, focus on the location decisions of multinationals and the impact of global firms on collective bargaining outcomes