Which Boats are lifted by a Foreign Tide? Direct and Indirect Wage E ects of Foreign Ownership

This paper examines the e ects of foreign ownership on wages both theoretically and empirically. The focus is on direct as well as spillover e ects: Foreign ownership directly raises a rm's wage level, and this e ect is... [ view full abstract ]

This paper examines the e ects of foreign ownership on wages both theoretically and empirically. The focus is on direct as well as spillover e ects: Foreign ownership directly raises a rm's wage level, and this e ect is shown to be stronger the more rms are already foreign owned in a given cluster. In contrast, an increase in the share of foreign owned firms  lowers the average wage paid by domestic rms. The strength of this e ect also depends on the share of foreign owned rms in the cluster. These theoretical e ects are derived from a model with heterogeneous rms and labor market frictions, and we find broad empirical support using data from over 140,000 manufacturing rms in China.