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FDI CONSEQUENCES OF DOWNWARD WAGE-COST RIGIDITIES
- Authors
- Song, Jeongseok; Yang, Daecheon; Kwon, Soonwon
- Issue Date
- Dec-2017
- Publisher
- WORLD SCIENTIFIC PUBL CO PTE LTD
- Keywords
- Foreign direct investment; wage rigidities; labor market flexibility; regime-switching
- Citation
- SINGAPORE ECONOMIC REVIEW, v.62, no.5, pp 1223 - 1244
- Pages
- 22
- Journal Title
- SINGAPORE ECONOMIC REVIEW
- Volume
- 62
- Number
- 5
- Start Page
- 1223
- End Page
- 1244
- ISSN
- 0217-5908
1793-6837
- Abstract
- This paper estimates an adjusted gravity model by directly measuring downward wage rigidities based on our modified regime-switching specification in order to investigate the effect of labor market flexibility on the flows of foreign direct investment (FDI) between Korea and 18 counterpart countries. To measure wage-cost rigidities, we employ firm-specific sales data for 410,012 firms in 19 countries obtained from Compustat as a relevant driver of wage costs extracted from earnings data by International Labor Organization (ILO). Our results suggest that greater wage rigidities in a counterpart country are associated with less net-outflows of FDI in Korea.
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