Foreign Shares, Human Capital and Wage Inequality: Evidence from Indian Manufacturing Firms

Abstract

The interactions between Foreign Direct Investment (FDI) and human capital formations have strong implications for labour demand and supply factors in developing economies through various ways like training, direct technological diffusion, innovation and imitation. Indian economy has featured rising wage inequality and demographic dividend simultaneously since the last decade. In line with the similar research, the objective of the paper is to empirically assess this effect in Indian manufacturing firms using unbalanced panel data for the period 2001-2015. This paper uses fixed effects panel data estimation technique to get the estimates. The findings reflect that FDI is found out to be stirring up wage inequality with positive relation between relative wages and interaction term of training and FDI suggestive of positive demand side effect of FDI only through this channel.