OUTWARD FOREIGN DIRECT INVESTMENT AND LABOR SHARES: EVIDENCE FROM TAIWANESE MANUFACTURING FIRMS

Using Taiwanese data on manufacturing firms during 2002-2018, this study examines the impact of outward foreign direct investment (OFDI) on labor shares. Controlling for firm fixed effects, the labor share is lower for a firm undertaking OFDI versus firms that do not. This effect is, however, driven mainly by firms' investing in China rather than in other countries. In addition, firms with more exports, higher export intensity, and higher productivity tend to have lower labor shares. Considering the potential endogeneity of OFDI, we adopt propensity score matching (PSM) for multiple treatments PSM. Results show that, relative to firms that did not engage in OFDI, firms that invest in China and other areas have the lowest labor shares (a reduction of 37%-39%), followed by firms investing only in China (a reduction of 20%-22%), and firms investing in other areas only have little differences in labor shares.