Foreign direct investment and wages in Central and Eastern Europe

Abstract

This paper explores the link between foreign direct investment and wages in three countries of Central and Eastern Europe: Poland, Bulgaria and Romania. The objective of the study is twofold. It tries to detect (1) whether higher levels of foreign investment in a local market are associated with higher wages for the market as a whole and (2) whether a higher foreign presence is also associated with higher domestic firms’ wages. Results indicate that higher levels of foreign activity are associated with higher local wages in all countries. Moreover, evidence supports the existence of positive FDI spillovers from foreign to domestic producers in Poland, but not in Bulgaria and Romania. Evidence also suggests that there is a link between the FDI impact on wages and the sector of activity in which foreign and domestic firms operate. FDI effects seem to vary substantially across sectors of the economy. Keywords: foreign direct investment; spillovers; wage; manufacturing; emerging countries. JEL classification: F2, J3, L6, P2.