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Do Multinational Enterprises Relocate Employment to Low Wage Regions? Evidence from European Multinationals

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Author Info

  • Konings, Jozef

    (Katholieke Universiteit Leuven; CEPR, UK; IZA, Bonn; WDI, Michigan Ann Arbor)

  • Murphy, Alan

    (Central Bank and Financial Services Authority of Ireland)

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    Abstract

    This paper analyses the behaviour of European multinational enterprises. To this end we use a unique firm level panel data set of more than 1,000 European multinational parent enterprises and their affiliates. The affiliates are located either in the European Union (North, South), Central and Eastern Europe or both. We find for parent firms operating in the manufacturing sector that the labour cost elasticity of parent employment with respect to North EU affiliates’ labour costs is positive and statistically significant, ranging from 0.03 to 0.08, depending on the specification considered. This implies employment substitution between parents and their North EU based affiliates. This substitution effect becomes stronger when affiliates are operating in a different sector than their parent. However, we find no evidence of substitution effects between parent employment and its affiliates that are located in low wage regions in the EU and in Central and Eastern Europe. Furthermore, substitution effects are absent for firms operating in the non-manufacturing sector. Our results suggest that on average the competition from low wage countries in Central and eastern Europe and the South of the EU did not contribute to a relocation of domestic jobs to these low wage regions.

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    Bibliographic Info

    Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 1/RT/05.

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    Length: 34 pages
    Date of creation: Mar 2005
    Date of revision:
    Handle: RePEc:cbi:wpaper:1/rt/05

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    1. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    2. repec:fth:iniesr:490 is not listed on IDEAS
    3. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
    4. Giorgio Barba Navaretti & Daniele Checchi & Alessandro Turrini, 2003. "Adjusting Labor Demand: Multinational Versus National Firms: A Cross-European Analysis," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 708-719, 04/05.
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    7. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers.
    8. Holger G�rg & Eric Strobl, 2003. ""Footloose" Multinationals?," Manchester School, University of Manchester, vol. 71(1), pages 1-19, January.
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    10. Blomström, Magnus & Fors, Gunnar & Lipsey, Robert E., 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," Working Paper Series 490, Research Institute of Industrial Economics.
    11. Nickell, Stephen & Wadhwani, Sushil B, 1989. "Employment Determination in British Industry: Investigations Using Micro-Data," CEPR Discussion Papers 320, C.E.P.R. Discussion Papers.
    12. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," BEA Papers 0012, Bureau of Economic Analysis.
    13. Hans-Peter Lankes & A. J. Venables, 1996. "Foreign direct investment in economic transition: the changing pattern of investments," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 331-347, October.
    14. Robert E. Lipsey, 1999. "Foreign Production by U.S. Firms and Parent Firm Employment," NBER Working Papers 7357, National Bureau of Economic Research, Inc.
    15. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
    16. Budina, Nina & Garretsen, Harry & de Jong, Elke, 2000. "Liquidity constraints and investment in transition economies - the case of Bulgaria," Policy Research Working Paper Series 2278, The World Bank.
    17. Giovanni S. F. Bruno & Anna M. Falzoni, 1999. "Multinational Corporations, Wages and Employment: Do Adjustment Costs Matter?," Development Working Papers 130, Centro Studi Luca d\'Agliano, University of Milano.
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