Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras

Abstract

In this paper, we examine the increase in relative wages for skilled workers in Mexico during the 1980s. Rising wage inequality in Mexico is linked to foreign capital inflows. We study the impact of foreign direct investment (FDI) on the skilled labor share of wages in Mexico over 1975–1988. We measure FDI using regional data on foreign assembly plants. Growth in FDI is positively correlated with the relative demand for skilled labor. In regions where FDI has concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor wage share that occurred in the late 1980s. © 1997 Elsevier Science B.V.