A VAR Analysis of FDI and Wages: The Romania's Case
A VAR Analysis of FDI and Wages: The Romania's Case

Summary/Abstract: According to Lall (1997), the FDI are strongly interconnected with a series of variables, such as: economic conditions (markets, natural resources, competitiveness), host country policies (macro policies, private sector, trade and industry, FDI policies), as well as MNE strategy (risk perception, location, sourcing of products/inputs, integration transfer). Recent studies have shown that the relationship ‘FDI-Wages’ is significant and the two variables have one on one influence. More precisely, the low wages have the role to attract FDI and the high volume of FDI generates the increase of the wages on the destination’s country labor market. Also, the FDI augmentations determine inequalities on the structure of the wages. The paper analyses the ‘behavior’ of the relationships between the volume of FDI and the level of wages, in Romania, using an unrestricted vector autoregressive model (Unrestricted VAR). Based on the impulse functions generated by the model, some principal conclusions have resulted: (1) The impact of the FDI on the wages is not uniform during the year, depending usually on the FDI flow and also on the self-regulation way and reaction of the wages on the labor market; (2) The impact of the wages on the FDI is temporally sinuous in short term. In this situation, the FDI flow does not depend entirely on the signals received by investors regarding the level of wages in the destination country.

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