The Effects of Multinational Production on Wages and Working Conditions in Developing Countries

59 Pages Posted: 4 May 2003

See all articles by Drusilla K. Brown

Drusilla K. Brown

Tufts University - Department of Economics

Alan V. Deardorff

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; University of Michigan at Ann Arbor - Department of Economics

Robert M. Stern

University of Michigan at Ann Arbor - Department of Economics

Date Written: May 2003

Abstract

This paper assesses the evidence regarding the effects of multinational production on wages and working conditions in developing countries. It is motivated by recent controversies concerning whether multinational firms in developing countries exploit workers by paying low wages and subjecting them to substandard conditions. We first address efforts of activist groups, universities, and colleges in the Anti-Sweatshop' Campaign in the United States, the social accountability of multinational firms, and the role of such international institutions as the International Labor Organization and World Trade Organization in dealing with labor standards and trade. We then consider conceptually how foreign direct investment might affect host-country wages. Available theories yield ambiguous predictions, leaving the effects to be examined empirically. We therefore, finally, review empirical evidence on multinational firm wages in developing countries, and the relationship between foreign direct investment and labor rights. This evidence indicates that multinational firms routinely provide higher wages and better working conditions than their local counterparts, and they are typically not attracted preferentially to countries with weak labor standards.

Suggested Citation

Brown, Drusilla K. and Deardorff, Alan V. and Stern, Robert M., The Effects of Multinational Production on Wages and Working Conditions in Developing Countries (May 2003). NBER Working Paper No. w9669, Available at SSRN: https://ssrn.com/abstract=403640

Drusilla K. Brown

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3096 (Phone)
617-627-3917 (Fax)

Alan V. Deardorff (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States

University of Michigan at Ann Arbor - Department of Economics ( email )

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Robert M. Stern

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-2373 (Phone)
313-763-9181 (Fax)

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