Exporting, Education, and Wage Differentials between Foreign Multinationals and Local Plants in Indonesian and Malaysian Manufacturing

There is now substantial evidence that foreign multinational enterprises (MNEs) often pay higher wages than corresponding local plants. This paper extends this research by asking whether MNE-local wage differentials depend on whether a plant exports or not. Mean, unconditional, MNE-local wage differentials tended to be somewhat smaller for exporters than for non-exporters in large samples of 11 manufacturing industries of Malaysia in 2000-2004 (31 vs. 44 percent) and Indonesia in 2006 (58 vs. 74 percent), and the gap was particularly conspicuous for Indonesia in 1996 (89 vs. 220 percent). Conditional MNE-local wage differentials that account for the influences of worker education and sex, as well as plant size and capital or energy intensity, on plant-level wages, were smaller but positive and highly significant statistically. Conditional differentials were also smaller for exporters Indonesia in 1996 (24 vs. 32 percent), but larger for exporters in Indonesia in 2006 (12 vs. 5.7 percent) and Malaysia in 2000-2004 (8.8-9.2 vs . 6.2-7.5 percent in pooled OLS estimates and 7.2-7.8 vs. 4.7-6.7 percent in random effects estimates). However, when estimated at the industry level, conditional differentials and were often insignificant, especially for Indonesia in 2006, and industry-level differentials were not clearly related to export status