The Labor Market Effects of FDI: A Panel Data Evidence from Mexico

ABSTRACT

This paper explores the effects of Foreign Direct Investment (FDI) inflows on six labor market outcomes by using a panel data of the Mexican states from 2005 to 2015. By relying on the system Generalized Method of Moments estimator to address potential endogeneity of FDI in the labor market outcomes regressions, this study finds that the FDI inflows result in a reduction in the overall unemployment rate. Moreover, the FDI is associated with a decrease in the percentage of employed people with the need and availability to offer more working hours and an increase in the median hourly wage rate. The FDI is not likely to influence the critical employment, informal sector employment, and unemployment duration.

KEYWORDS:

• Foreign direct investment
• employment
• panel data
• Mexico

JEL Classifications:

• F20
• J6

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 la Cruz, Luis, and Núñez Mora (2006) show a causal relationship from FDI to economic growth.

2 Refer to Hale and Xu (2016) for additional mechanisms and detailed discussions of the above conceptual frameworks.

3 http://www.inegi.org.mx/sistemas/bie/ last accessed July 20th, 2017.

4 http://www.conapo.gob.mx/es/CONAPO/Proyecciones last accessed July 20th, 2017.

5 http://www.stps.gob.mx/gobmx/estadisticas/ last accessed July 20th, 2017.

6 The long-run effect is obtained from ${\propto }_1/(1-{\propto }_0)$ of equation (2).

Additional information

Notes on contributors

Amarendra Sharma

Dr Amarendra Sharma is an Associate Professor of Economics at Elmira College, and is also affiliated with the School of International Service, American University in Washington, DC. His current research interests lie in the fields of Public Economics, Labor Economics, Development Economics, and International Economics.

Oscar Cardenas

Dr Oscar Cardenas is affiliated with International Association of Local Public Economics (Asociación Internacional de Economía Pública Local). His research interests lie in the field of Public Finance.