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How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy

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Author Info
Barba Navaretti, Giorgio
Castellani, Davide
Disdier, Anne-Célia

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Abstract

Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment. For France we find a positive effect on the size of domestic activity. Investments to developed economies from both countries have essentially scale effects which eventually trickle down on employment and productivity at home.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5765.

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Date of creation: Jul 2006
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Handle: RePEc:cpr:ceprdp:5765

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Related research
Keywords: multinational firms; productivity; propensity score matching;

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert-Nicoud, Frédéric, 2006. "Off-Shoring of Business Services and Deindustrialization: Threat or Opportunity - and for Whom?," CEPR Discussion Papers 5617, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Sarianna M. Lundan, 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy. [Downloadable!]
  3. MATSUURA Toshiyuki & MOTOHASHI Kazuyuki & HAYAKAWA Kazunobu, 2008. "How Does FDI in East Asia Affect Performance at Home?: Evidence from Electrical Machinery Manufacturing Firms," Discussion papers 08034, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  4. Jae-won Jung & Jean Mercenier, 2008. "A Simple Model of Offshore Outsourcing,Technology Upgrading and Welfare," THEMA Working Papers 2008-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  5. Fukao, Kyoji & Ito, Keiko & Kwon, Hyeog Ug & Takizawa, Miho, 2007. "Cross-Border Acquisitions and Target Firms' Performance: Evidence from Japanese Firm-Level Data," CEI Working Paper Series 2006-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
    Other versions:
  6. Vivien Procher, 2009. "Agglomeration Effects and the Location of Foreign Direct Investment – Evidence from French First-time Movers," Ruhr Economic Papers 0100, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  7. Naghavi, Alireza & Ottaviano, Gianmarco Ireo Paolo, 2006. "Offshoring and Product Innovation," CEPR Discussion Papers 6008, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Giuseppe Tattara & Carlo Gianelle, 2007. "Producing abroad while making profits at home:Veneto footwear and clothing industry," Working Papers 2007_35, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  9. 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. [Downloadable!]
  10. Jaan Masso & Urmas Varblane & Priit Vahter, 2007. "The Impact Of Outward Fdi On Home-Country Employment In A Low-Cost Transition Economy," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 52, Faculty of Economics and Business Administration, University of Tartu (Estonia). [Downloadable!]
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  11. Alexander HIJZEN & INUI Tomohiko & TODO Yasuyuki, 2007. "The Effects of Multinational Production on Domestic Performance: Evidence from Japanese Firms," Discussion papers 07006, Research Institute of Economy, Trade and Industry (RIETI). [Downloadable!]
  12. Marcus Neureiter & Peter Nunnenkamp, 2009. "Outsourcing Motives, Location Choice and Labour Market Implications: An Empirical Analysis for European Countries," Kiel Working Papers 1541, Kiel Institute for the World Economy. [Downloadable!]
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