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International rent sharing and domestic labour markets: a macroeconomic analaysis

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  • W. Jos Jansen
  • Ad C.J. Stokman

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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Bibliographic 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
Date of revision:
Handle: RePEc:dnb:wormem:749

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

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References

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  1. John W. Budd & Jozef Konings & Matthew J. Slaughter, . "International Rent Sharing in Multinational Firms," Working Papers, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus) 0202, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  2. Fathi Fakhfakh & Felix FitzRoy, 2002. "Basic Wages and Firm Characteristics: Rent-sharing in Frensh Manufacturing," CRIEFF Discussion Papers 0203, Centre for Research into Industry, Enterprise, Finance and the Firm.
  3. 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.
  4. Jeroen J.M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 431, Board of Governors of the Federal Reserve System (U.S.).
  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.
  6. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2002. "Wages and International Rent Sharing in Multinational Firms," William Davidson Institute Working Papers Series 522, William Davidson Institute at the University of Michigan.
  7. Pedro Martins, 2009. "Rent sharing before and after the wage bill," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(17), pages 2133-2151.
  8. Jansen, W. Jos & Stokman, Ad C.J., 2004. "Foreign direct investment and international business cycle comovement," Working Paper Series, European Central Bank 0401, European Central Bank.
  9. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics.
  10. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 21(3), pages 593-618, July.
  11. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(445), pages 1770-86, November.
  12. Louis N. Christofides & Andrew J. Oswald, 1989. "Real Wage Determinatioan in Collective BArgaining Agreements," NBER Working Papers 3188, National Bureau of Economic Research, Inc.
  13. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 985-1002, August.
  14. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth," IMF Working Papers 01/175, International Monetary Fund.
  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.
  16. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc.
  17. 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.
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Cited by:
  1. Jörn Kleinert & Julien Martin & Farid Toubal, 2012. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," Working Papers 2012-18, CEPII research center.
  2. Jos Jansen & Ad Stokman, 2011. "International Business Cycle Comovement: Trade and Foreign Direct Investment," DNB Working Papers, Netherlands Central Bank, Research Department 319, Netherlands Central Bank, Research Department.

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