Winners and Losers from Multinational Entry: The Labor Market Effects of Brazil's FDI Liberalization – Ignacio Marra de Artiñano

Sprecher

Ignacio Marra de Artiñano (Université Libre de Bruxelles)

Abstract

This paper investigates the labor market consequences of Brazil’s 1995 foreign direct investment (FDI) liberalization, which removed constitutional barriers explicitly discriminating against foreign investors. Exploiting the variation provided by the amendment, I use detailed employer–employee data and firm-level FDI inflows to analyze both the direct effects on workers employed by multinational corporation (MNC) affiliates and the indirect effects on domestic workers and firms. The findings reveal significant wage gains for workers switching to MNCs, particularly among college-educated individuals. In contrast, workers in domestic firms face heterogeneous outcomes: low-skilled workers experience declining wages and higher layoff risks, while college graduates enjoy modest wage gains. The liberalization thus acted as a skill-biased reallocation shock, disproportionately benefiting high-skilled workers. A structural model incorporating heterogeneous workers and firms with varying skill intensities rationalizes these findings and supports counterfactual analyses of alternative investment facilitation strategies.

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