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Foreign direct investment

By J. Hatzius

Abstract

This paper argues that the liberalisation of foregin direct investment (FDI) has made labour costs more important to domestic investment and long-run labour demand. It provides evidence from British and German data 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

Topics: HG Finance
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1997
OAI identifier: oai:eprints.lse.ac.uk:20351
Provided by: LSE Research Online

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