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The Effect of FDI on Job Separation

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  • Sascha O. Becker
  • Marc-Andreas Muendler

Abstract

A novel linked employer-employee data set documents that expanding multinational enterprises retain more domestic jobs than competitors without foreign expansions. In contrast to prior research, a propensity score estimator allows enterprise performance to vary with foreign direct investment (FDI) and shows that the foreign expansion itself is the dominant explanatory factor for reduced worker separation rates. Bounding, concomitant variable tests, and robustness checks rule out competing hypotheses. The finding is consistent with the idea that, given global factor price differences, a prevention of enterprises from outward FDI would lead to more domestic worker separations. FDI raises domestic-worker retention more pronouncedly among highly educated workers and for expansions into distant locations.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1864.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1864

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Keywords: multinational enterprises; international investment; demand for labor; worker layoffs; linked employer-employee data;

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References

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  1. Muendler, Marc-Andreas & Becker, Sascha O., 2006. "Margins of Multinational Labor Substitution," IZA Discussion Papers 2131, Institute for the Study of Labor (IZA).
  2. Jäckle, Robert, 2006. "Going multinational: What are the effects on home market performance?," Discussion Paper Series 1: Economic Studies 2006,03, Deutsche Bundesbank, Research Centre.
  3. Michael P. Keane & Susan E. Feinberg, 2006. "Accounting for the Growth of MNC-Based Trade Using a Structural Model of U.S. MNCs," American Economic Review, American Economic Association, vol. 96(5), pages 1515-1558, December.
  4. James Heckman & Salvador Navarro-Lozano, 2004. "Using Matching, Instrumental Variables, and Control Functions to Estimate Economic Choice Models," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 30-57, February.
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  7. Debaere, Peter & Lee, Hongshik & Lee, Joonhyung, 2006. "Does Where You Go Matter? The Impact of Outward Foreign Direct Investment on Multinationals' Employment at Home," CEPR Discussion Papers 5737, C.E.P.R. Discussion Papers.
  8. Ekholm, Karolina & Forslid, Rikard & Markusen, James R., 2003. "Export-Platform Foreign Direct Investment," CEPR Discussion Papers 3823, C.E.P.R. Discussion Papers.
  9. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
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  12. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  13. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," NBER Working Papers 9740, National Bureau of Economic Research, Inc.
  14. Jozef Konings & Alan Patrick Murphy, 2006. "Do Multinational Enterprises Relocate Employment to Low-Wage Regions? Evidence from European Multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 267-286, July.
  15. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
  16. Geishecker, Ingo, 2006. "The impact of international outsourcing on individual employment security: a micro level analysis," Discussion Papers 2006/17, Free University Berlin, School of Business & Economics.
  17. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
  18. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  19. Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April.
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Citations

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Cited by:
  1. Olga Bohachova & Bernhard Boockmann & Claudia M. Buch, 2011. "Labor Demand During the Crisis: What Happened in Germany?," IAW Discussion Papers 76, Institut für Angewandte Wirtschaftsforschung (IAW).
  2. Muendler, Marc-Andreas & Becker, Sascha O., 2006. "Margins of Multinational Labor Substitution," IZA Discussion Papers 2131, Institute for the Study of Labor (IZA).
  3. Mitze, Timo & Alecke, Björn & Untiedt, Gerhard, 2008. "Trade, FDI and Cross-Variable Linkages: A German (Macro-)Regional Perspective," MPRA Paper 12245, University Library of Munich, Germany.
  4. Jäckle, Robert, 2006. "Going multinational: What are the effects on home market performance?," Discussion Paper Series 1: Economic Studies 2006,03, Deutsche Bundesbank, Research Centre.
  5. Wilhelm Kohler & Christian Arndt & Anselm Mattes & Michael Knogler & Fidelis Lankes & Jarko Fidmuc, 2007. "Die neuen Mitglieder: Motor oder Bremse der europäischen Integration?," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 60(14), pages 03-20, 07.
  6. Ronald Bachmann & Daniel Baumgarten & Joel Stiebale, 2011. "Cross-border Investment, Heterogeneous Workers, and Employment Security – Evidence from Germany," Ruhr Economic Papers 0268, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Vivien Procher & Dirk Engel, 2009. "Export, FDI and Productivity – Evidence for French Firms," Ruhr Economic Papers 0111, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  8. Buch, Claudia M. & Lipponer, Alexander, 2010. "Volatile multinationals? Evidence from the labor demand of German firms," Labour Economics, Elsevier, vol. 17(2), pages 345-353, April.
  9. Timo Mitze & Björn Alecke & Gerhard Untiedt, 2009. "Trade-FDI Linkages in a System of Gravity Equations for German Regional Data," Ruhr Economic Papers 0084, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  10. Sebastian Hügelschäffer & Daniel Kromer & Alexander Lipponer, 2009. "Die deutsche Statistik über Direktinvestitionen: Neuerungen und wissenschaftliche Nutzung," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 3(3), pages 157-167, November.

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