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International rent sharing and domestic labour markets: a macroeconomic analaysis

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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. However, compared to international trade, relatively little is known about the role of foreign direct investment (FDI) and multinational firm behaviour 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 whether a cross-border rent-sharing phenomenon can be identified at the macro-level. The rent-sharing hypothesis implies that an increase in foreign profitability should boost wages and/or employment in the domestic economy. Our empirical study provides evidence that international rent sharing might be an important aspect of global economic linkages. Especially in continental Europe and the UK, labour market conditions (wages and/or employment) are significantly affected by profitability conditions abroad. The US labour market, on the other hand, does not appear to be sensitive to changes in profitability in other countries, which could be explained by the still relatively modest role of FDI capital in the American economy.

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Publisher Info
Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 749.

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Length: 26 pages
Date of creation: Nov 2003
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Handle: RePEc:dnb:wormem:749

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

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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. 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)
  4. 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:
  5. 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:
  6. John W. Budd & Jozef Konings & Matthew J. Slaughter, . "International Rent Sharing in Multinational Firms," Working Papers 0202, Industrial Relations Center, University of Minnesota (Twin Cities Campus). [Downloadable!]
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  7. 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:
  8. 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:
  9. 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!]
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  10. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics. [Downloadable!]
  11. 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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  12. 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!]
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  13. 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)
  14. 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:
  15. 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)
  16. 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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