Indian Journal of Industrial Relations: Economics & Social Dev.

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Labour Cost & Foreign Direct Investment-Evidence from India


Affiliations
1 Department of Finance, Shih Chien University Kaohsiung Campus, Neimen Shiang, Kaohsiung 845, TAIWAN, China
2 Department of PM&IR, School of Business and Human Resources, XLRI Jamshedpur 831001, India
     

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This study measures the effect of labour cost on foreign direct investment in India and finds out whether the foreign owned firms pay higher wages than their domestic counterparts. The estimation has been done by the Ordinary Least Square (OLS) technique. Data suggest that after controlling the output, the lower average wage attracts foreign investment in a firm implying that India enjoys comparative advantages of low labour cost which enables her to lead in product competition globally. Second, Indian firms will have efficiency wage to encourage employees to produce higher output. In addition, the foreign owned firms in India pay higher wages than their domestic counterparts. The firms with higher ratio of foreign ownership pay more wages than the firms having lower ratio.
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  • Labour Cost & Foreign Direct Investment-Evidence from India

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Authors

Yu-Cheng Lai
Department of Finance, Shih Chien University Kaohsiung Campus, Neimen Shiang, Kaohsiung 845, TAIWAN, China
Santanu Sarkar
Department of PM&IR, School of Business and Human Resources, XLRI Jamshedpur 831001, India

Abstract


This study measures the effect of labour cost on foreign direct investment in India and finds out whether the foreign owned firms pay higher wages than their domestic counterparts. The estimation has been done by the Ordinary Least Square (OLS) technique. Data suggest that after controlling the output, the lower average wage attracts foreign investment in a firm implying that India enjoys comparative advantages of low labour cost which enables her to lead in product competition globally. Second, Indian firms will have efficiency wage to encourage employees to produce higher output. In addition, the foreign owned firms in India pay higher wages than their domestic counterparts. The firms with higher ratio of foreign ownership pay more wages than the firms having lower ratio.

References