Does plant size matter? differential effects of foreign direct investment on wages and employment in Indian manufacturing
Abstract
This paper examines the differential effects, based on the size of the plant, of
industry-level foreign direct investment (FDI) on plant-level employment and
the wages of skilled and unskilled workers in India’s manufacturing sector. On
average, there are strong positive differential effects of increased inward-level
FDI for large plants relative to small and average-sized plants in terms of
employment and the average wages of both skilled and unskilled workers. Small
plants experience negative effects from inward FDI, which can be explained
by intra-industry reallocation of output from smaller to larger plants. After
conducting a regional analysis, I find positive spillovers to small plants in Indian
states that receive large and persistent flows of FDI. This suggests that a critical
mass of FDI is necessary for small plants to experience positive spillover effects.
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