ABSTRACT
The implications of the involvement of multinational enterprises (MNEs) in domestic manufacturing for domestic employment and real wages have long been a source of controversy in developing countries. A common ground for attack on MNEs involved in import-substitution production is that the technology introduced by them is highly capital intensive, and therefore tends to reduce the employment potential of industrialisation. It is also alleged that MNEs pay abnormally high wages to local workers leading to further intensification of the overall capital-intensity bias in industry and unequitable distribution of gains from industrialisation. By reverse reasoning, MNEs involved in export-oriented industries are expected to yield a favourable labour market outcome as their choice of technology and wage policy tend to be much in line with the comparative advantage in international production of the given host country. This perception is reflected in the new conventional wisdom that export-oriented foreign direct investment (EOFDI) deserves significant encouragement in developing countries.
