Foreign Direct Investment, Productivity, Demand for Skilled Labour and Wage Inequality: An Analysis of Uruguay

This work seeks to identify causal effects of foreign ownership on productivity, the demand for skilled labour and wage inequality. To this aim we use GMM-IV, and matching and differences-in-differences techniques for a panel of Uruguayan manufacturing firms for the period 1997-2005.

Our results seem to indicate that FDI causes higher productivity and an increased demand for skilled labour. Furthermore, though average wages are higher in foreign owned firms, the wage gap between skilled and unskilled workers is higher in foreign owned firms than in domestic ones. Then, it follows that promoting foreign investment enhances productivity. On the other hand, due to the higher demand for skilled workers policies such as training of workers would be conductive to further productivity improvements, while other social policies could help to mitigate wage inequality effects.