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International Rent Sharing and Domestic Labour Markets: A Macroeconomic Analysis

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Author Info
W. Jos Jansen
Ad C.J. Stokman

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Abstract

Foreign subsidiaries account for a significant part of output in many industrialised countries. Compared to international trade relations, however, relatively little is known about the role foreign direct investment linkages play in the transmission of disturbances from one country to the next. Inspired by the micro-evidence on profit sharing within multinational corporations and within industries, we investigate for six countries whether a cross-border rent-sharing phenomenon can be identified at the macroeconomic level. The rent-sharing hypothesis implies that an increase in foreign profitability should boost wages and/or employment in the domestic economy. We find corroborative evidence for Belgium, France, Germany, the Netherlands and the UK. US labour market conditions, by contrast, are not affected by changes in profitability in other countries, which could be explained by the still relatively modest role of foreign-owned capital in the American economy. Hence, international rent sharing might be an important aspect of global economic linkages.

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Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-14.

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Date of creation: Oct 2003
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Handle: RePEc:dnb:mebser:2003-14

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Related research
Keywords: foreign direct investment; international rent sharing; labour markets; spillovers; economic integration;

Other versions of this item:

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 985-1002, August. [Downloadable!] (restricted)
    Other versions:
  3. Martins, Pedro S., 2004. "Rent Sharing Before and After the Wage Bill," IZA Discussion Papers 1376, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2005. "Wages and International Rent Sharing in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 73-84, November. [Downloadable!] (restricted)
    Other versions:
  5. R-P. Berben & W.J. Jansen, 2001. "Comovement in International Equity Markets: a Sectoral View," MEB Series (discontinued) 2001-11, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
    Other versions:
  6. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
    Other versions:
  7. Butter, Frank A.G. den & Mosch, Robert H.J., 2001. "the Dutch miracle: institutions, networks and trust," Serie Research Memoranda 0018, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
    Other versions:
  8. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July. [Downloadable!]
    Other versions:
  9. Budd, John W & Konings, Jozef & Slaughter, Matthew, 2002. "International Rent Sharing in Multinational Firms," CEPR Discussion Papers 3326, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. John W. Budd & Matthew J.Slaughter, 2000. "Are Profits Shared Across Borders? Evidence on International Rent Sharing," NBER Working Papers 8014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Louis N. Christofides & Andrew J. Oswald, 1989. "Real Wage Determinatioan in Collective BArgaining Agreements," NBER Working Papers 3188, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics. [Downloadable!]
  13. Fathi Fakhfakh & Felix FitzRoy, 2004. "Basic Wages and Firm Characteristics: Rent Sharing in French Manufacturing," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 18(4), pages 615-631, December. [Downloadable!] (restricted)
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  14. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  15. Blomström, Magnus & Globerman, Steve & Kokko, Ari, 2000. "The Determinants of Host Country Spillovers from Foreign Direct Investment," CEPR Discussion Papers 2350, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. W.Jos Jansen & Ad C.J.Stokman, 2003. "Foreign Direct Investment and International Business Cycle Comovement," MEB Series (discontinued) 2003-10, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
    Other versions:
  17. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November. [Downloadable!] (restricted)
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