Racing to the Bottom for FDI? The Changing Role of Labor Costs and Infrastructure

The opening of low wage nations to FDI has created much more competition for investment since the beginning of the 1990s. Observers in middle-income developing countries such as Brazil, Malaysia and Mexico, which have benefited from FDI, express fears of losing to new, lower wage destinations. Are such countries facing a dilemma, in which the very wage growth provided by FDI must be reversed to continue attracting investment? Or, are there alternative means of enticing multinational corporations, in particular physical infrastructure, which avoid a "race to the bottom" in terms of living standards and in fact aid in development goals? Empirical results indicate that while wages have become a more important determinant of FDI between the 1980s and 1990s, so has infrastructure quality.