Labor Markets and the Demand for Foreign Direct Investment.pdfVIP

Labor Markets and the Demand for Foreign Direct Investment Sonal S+ Pandya Abstract Existing research on foreign direct investment ~FDI! focuses on how politics influences the supply of FDI inflows+ In this article I shift focus to the demand for FDI inflows within recipient countries by examining individual preferences for FDI+ I argue that FDI preferences are largely a function of FDI’s effects on income+ FDI raises wages, especially those of skilled labor because foreign firms require more highly skilled labor than their local counterparts+ Accordingly, support for FDI should increase with respondents’ skills+ Using three years of extensive public opin- ion data from eighteen Latin American countries, I provide robust evidence that preferences are consistent with FDI’s effects on income+ There is relatively little support for alternate explanations including concerns about job security, opposition to privatization, and the socializing effects of higher education on economic policy preferences+ Political economy research has only begun to tap into the richness and complexity of foreign direct investment ~FDI!+ FDI plays a central role in many aspects of international economic integration+ It is the single largest source of global capital, in some years worth more than all other forms of capital flows+1 It drives other types of economic flows+ For example, intrafirm trade—trade between subsidiar- ies of a single multinational firm—constitutes over one-third of total world trade+2 FDI can also foster economic development by creating jobs and introducing new technologies+3 Existing political economy scholarship on FDI emphasizes how polit- ical risk influences where multinational firms choose to invest+ For example, cur- rent research shows that countries with lower risk receive higher volumes of FDI; debate in this literature c