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Key words: Gini, Wage Inequality, FDI, Transition Economies, FE model
Jel Codes: C33 Panel Data Models; D63 Inequality; F23 Multinational Firms
ABSTRACT
The last two decades have been characterised by a rise in income and wage inequality in a wide range of countries, including transition countries. The rise in globalisation (mainly measured by trade and FDI) is one major factor explaining this increasing wage inequality (Te Velde, 2003; OECD-ILO, 2008; Mahutga and Bandelj, 2008; Franco and Gerussi, 2010; Figini and Görg, 2011). International trade and foreign direct investment have increased significantly in transition economies during the transition period, which has motivated scholars to examine the impact of these factors on labour market and more specifically wage inequality. This paper aims to examine whether FDI plays a major role in explaining the pattern of wage inequality in selected transition countries through an increase in the relative demand for skilled workers. The analysis presented in the previous research suggested that the net effect of FDI on wage inequality will depend on how large are the relative skill wage differences in foreign-owned firms and domestic owned firms, the relative skill-intensity of employment in foreign-owned firms compared to domestic ones and the relative size of the foreign-owned sector (Zulfiu-Alili, 2014).
This investigation has been conducted using two data sets. First, the Gini coefficient is used to measure wage inequality for the period from 1993 to 2008 for 19 transition countries. Second, we compute Gini coefficients on the average wages per employee across four digit level of ISIC manufacturing industries for 20 countries from 1992-2007. A cross-country empirical investigation indicates a positive relationship between FDI and wage inequality in nineteen transition countries.
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1. INTRODUCTION
International trade and foreign direct investment have increased significantly in transition economies during the transition period, which has motivated scholars to examine the impact of these factors on labour market and more specifically wage inequality. This paper aims to examine whether FDI plays a major role in explaining the pattern of wage inequality in selected transition countries through an increase in the relative demand for skilled workers. The analysis presented in the previous research suggested that the net effect of FDI on wage inequality will depend on how large...