Outward FDI and income inequality in the home country: The role of wage bargaining

Abstract

In the process of economic globalization, firms extending operations via Foreign Direct Investment (FDI) encounter significant effects on wage inequality. Workers with bargaining power can negotiate favorable terms, while those without this influence face pronounced disparities. Building on the framework of Helpman et al. (2010), this study examines the impact of non-bargaining workers on income inequality during the transition from autarky to outward FDI. The results highlight a marked increase in wage gaps, particularly with greater outward FDI intensity. Moreover, under certain conditions, there is a notable rise in overall inequality, as measured by the Theil index.