Greenfield FDI and skill upgrading: a polarized issue

Outbound FDI is often accused of increasing income inequality in developed countries by shifting labour demand from low-skilled towards high-skilled workers (wage polarization). In response, we employ data on greenfield FDI that, in contrast to M&As, may be more clearly linked to skill upgrading. Our data also delineate greenfield FDI by sector, function and destination, allowing us to control for different motives and skill intensities for 17 developed countries for 2003–2005. We find that greenfield FDI in support services, e.g., back and front office services, induces polarized skill upgrading, benefitting high-skilled workers at the expense of medium-skilled workers, thereby polarizing wages.