Employment effects of FDI in hot labour markets: A cross-country analysis

We examine the effects of FDI on domestic employment and labour costs, concentrating on high-tech industrial sectors. Using a detailed firm-level dataset covering 6 sectors in 29 countries over the period 2002-10, we find no evidence of crowding out of domestic employment by FDI in ‘hot’ labour markets, but strong evidence of significant wage effects. These effects are strongest in countries which are typically regarded as having relatively flexible labour markets. In the long run there is some evidence of crowding out in the domestic sector, but this is restricted to transition countries.