The effect of FDI and foreign trade on wages in the Central and Eastern European Countries in the post-transition era: A sectoral analysis

Özlem Onaran, Engelbert Stockhammer

Publication: Working/Discussion PaperWU Working Paper

Abstract

The aim of this paper is to estimate the effect of FDI and trade openness on wages in the CEECs in the post-transition era. We utilize a cross-country sector-specific eceonometric analysis based on one-digit level panel data for manufacturing industry in the Czech Republic, Hungary, Poland, Slovakia, Slovenia, for the period of 2000-2004. The results suggest that the increases in productivity are reflected in wages only to a modest extent, even in the long-term, leading to a steady decline in the share of labor in manufacturing industry in almost all sub-sectors in all countries. Meanwhile, the high significant and negative effect of unemployment on wages shows that the labor market is flexible in terms of wage flexibility. FDI has a positive effect on wages only in the capital and skill intensive sectors. The results also show that the increase in trade with EU did not lead to positive prospects for wages in manufacturing industry, contrary to the expectations of pro-market policies and traditional trade theory. The long-term net effect of exports and imports is negative, suggesting that integration of CEECs to EU via trade liberalization have worked at the expense of labor. (author's abstract)
Original languageEnglish
Place of PublicationVienna
PublisherInst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business
Publication statusPublished - 2006

Publication series

NameDepartment of Economics Working Paper Series
No.94

WU Working Paper Series

  • Department of Economics Working Paper Series

Cite this