Globalization and Equality: A Cross-Country Analysis

ADBIWorkingPaperSeries GLOBALIZATIONANDEQUALITY:ACROSS-COUNTRYANALYSIS ShujiroUrataandYoungminBaek No.1453 June2024 AsianDevelopmentBankInstitute ShujiroUrataisaformerVisitingFellowattheAsianDevelopmentBankInstitute,aDistinguishedSeniorFellowattheInstituteofDevelopingEconomies,ChairmanEmeritusattheResearchInstituteofEconomy,Trade,andIndustry,andProfessorEmeritusatWasedaUniversity,Japan.YoungminBaekisanAssociateProfessoratTokyoMetropolitanUniversity,Japan. TheviewsexpressedinthispaperaretheviewsoftheauthoranddonotnecessarilyreflecttheviewsorpoliciesofADBI,ADB,itsBoardofDirectors,orthegovernmentstheyrepresent.ADBIdoesnotguaranteetheaccuracyofthedataincludedinthispaperandacceptsnoresponsibilityforanyconsequencesoftheiruse.TerminologyusedmaynotnecessarilybeconsistentwithADBofficialterms. Discussionpapersaresubjecttoformalrevisionandcorrectionbeforetheyarefinalizedandconsideredpublished. TheWorkingPaperseriesisacontinuationoftheformerlynamedDiscussionPaperseries;thenumberingofthepaperscontinuedwithoutinterruptionorchange.ADBI’sworkingpapersreflectinitialideasonatopicandarepostedonlinefordiscussion.Someworkingpapersmaydevelopintootherformsofpublication. TheAsianDevelopmentBankrefersto“China”asthePeople’sRepublicofChina.ThispaperwassupportedbyJSPSKAKENHIGrantNumber22K13408. Suggestedcitation: Urata,S.andY.Baek.2024.GlobalizationandEquality:ACross-CountryAnalysis.ADBIWorkingPaper1453.Tokyo:AsianDevelopmentBankInstitute.Available:https://doi.org/10.56506/NXDT2483 Pleasecontacttheauthorsforinformationaboutthispaper.Email:surata@nifty.com AsianDevelopmentBankInstituteKasumigasekiBuilding,8thFloor3-2-5Kasumigaseki,Chiyoda-ku Tokyo100-6008,Japan Tel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.orgE-mail:info@adbi.org ©2024AsianDevelopmentBankInstitute Abstract Usingacross-sectionaldatasetof13manufacturingsectorsin27Asiandevelopingcountriesfrom2008to2022,weinvestigatedtheimpactofthepresenceofforeignfirmsonwagesofworkersfromdomesticfirms.First,wefoundthattheaveragewageofworkersfromforeignfirmsishigherthanthatofworkersfromdomesticfirms.Thispatternismorepronouncedinthecasesoflow-incomecountriesandtheservicesector.Second,theaveragewageofworkersfromdomesticfirmsthatareexposedtoforeignfirmsishigherthanthatofdomesticfirmswithoutexposuretoforeignfirms,indicatingaspilloverofwagesfromforeigntodomesticfirms.Third,thepresenceofforeignfirmsisfoundtowidenthewagegapbetweenskilledandunskilledworkers.Basedonourfindings,wearguethatdevelopingcountriesshouldimprovetheirFDIenvironmenttoattractFDIandupgradethequalityofunskilledlaborbyprovidingeducationandtraining,inordertoreducethewagegap. Keywords:foreigndirectinvestment,wagespillovers,wageinequality JELClassification:D22,E24,F21,R1 Contents 1.INTRODUCTION1 2.LITERATUREREVIEW2 3.SECTORALDISTRIBUTIONANDWAGESOFFOREIGNAND DOMESTICFIRMSINASIANDEVELOPINGCOUNTRIES4 4.METHODOLOGYANDDATA6 5.ESTIMATIONRESULTS8 6.CONCLUSIONS13 REFERENCES14 APPENDIX16 1.INTRODUCTION Theglobalizationofeconomicactivitiesthroughanexpansionofcross-bordermovementofgoods,services,capital,data,andpeoplehascontributedtoeconomicgrowthinmanycountries/economiesintheworld,andinparticularthoseinAsia,asglobalizationhascontributedtoimprovingtheallocationofresourcessuchaslaborandcapitalinproductionandincreasingproductivitythroughintensifiedcompetitionandpromotinginnovation(Urata2022).Amongvariousmeansofglobalization,foreigndirectinvestment(FDI)hasplayedaparticularlyimportantroleinpromotingeconomicgrowthindevelopingcountries,becauseFDIhasnotonlygeneratedinternationaltradeingoodsandservicesbutalsofacilitatedthetransferoftechnology.Indeed,FDIinflowstodevelopingcountries,particularlythoseinAsia,continuedtoincreasemoreorlessconsistentlyfromtheearly1990sthroughtheearly2020s(Figure1),whendevelopingcountriesachievedhigheconomicgrowth.Anumberofbothsupply-sideanddemand-sidefactorscontributedtothecontinuedexpansionofFDIinflowstoAsiancountries.Asregardsthesupply-sidefactors,aninvestmentfundwasabundantlyavailableacrosstheworld,partlyduetotheexpansionarymonetarypolicypursuedbymanydevelopedcountriesandderegulationinthefinancialsector.Turningtothedemand-sidefactors,theimplementationofapro-FDIpolicysuchastheFDIliberalizationpolicyandtheprovisionofincentivesbydevelopingcountriesattractedFDIinflows. Figure1:TrendsinInwardFDIFlows (inMillionUSD) Source:Authors’compilation,usingdataextractedfromUNCTADstat. Despitethebeneficialimpactsofglobalization,negativeimpactshaveemerged,resultinginananti-globalizationmovement.Amongthenegativeimpacts,thoseonequalityandtheenvironmenthavereceivedmostattention.ManystudieshaveexaminedtheimpactsofincreasedtradeandFDIoninequalityamongandwithincountries.Findingsfromthesestudiesshowmixedresults;thatis,globalizationeitherreducedorincreasedinequalityortherewasnodiscernibleimpact.UrataandNarjoko(2017)reviewedtheempiricalstudiesontheimpactofinternationaltradeoninequalityfordevelopingcountriesandfoundmixedresults.SimilarmixedresultshavebeenfoundfortheimpactofFDIinflowoninequalitybypreviousstudies,whichwillbereviewedinthen