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Do Multinational Enterprises Relocate Employment to Low Wage Regions? Evidence from European Multinationals

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Author Info
Jozef Konings
Alan Patrick Murphy

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Abstract

This paper analyzes the employment behavior of home multinational enterprises (MNEs) in Europe. To this end we use a unique firm level panel data set of more than 1,000 European multinational parent enterprises and their affiliates. The affiliates are located either in the European Union (North, South), Central and Eastern Europe or both. We find for parent firms operating in the manufacturing sector that the labor cost elasticity of parent employment with respect to North EU affiliates?labor costs is positive and statistically significant, ranging from 0.03 to 0.08, depending on the specification considered. This implies employment substitution between parents and their North EU based affiliates takes place in response to wage cost differentials between the parent and its North EU based affiliates. This substitution effect becomes stronger when affiliates are operating in a different sector than their parent firm. However, we find no evidence for such substitution effects between parent employment and its affiliates that are located in low wage regions in the EU and in Central and Eastern Europe. Furthermore substitution effects are absent for parent firms operating in the nonmanufacturing sector. Our results suggest that on average the competition from low wage countries in Central and Eastern Europe and the South of the EU did not contribute to a relocation of domestic jobs to these low wage regions.

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Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number 13103.

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Length: 35 pages
Date of creation: 2003
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Handle: RePEc:lic:licosd:13103

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Related research
Keywords: Key words: Relocation; Multinational Enterprises; Labor Demand;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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References listed on IDEAS
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.:
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  4. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Braconier, Henrik & Ekholm, Karolina, 2000. "Swedish Multinationals and Competition from High- and Low-Wage Locations," Review of International Economics, Blackwell Publishing, vol. 8(3), pages 448-61, August. [Downloadable!] (restricted)
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  6. Nickell, Stephen & Wadhwani, Sushil, 1991. "Employment Determination in British Industry: Investigations Using Micro-data," Review of Economic Studies, Blackwell Publishing, vol. 58(5), pages 955-69, October. [Downloadable!] (restricted)
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  7. Hans-Peter Lankes & A. J. Venables, 1996. "Foreign direct investment in economic transition: the changing pattern of investments," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 331-347, October. [Downloadable!] (restricted)
  8. Barba Navaretti, Giorgio & Checchi, Daniele & Turrini, Alessandro Antonio, 2003. "Adjusting Labour Demand: Multinational versus National Firms- A Cross-European Analysis," CEPR Discussion Papers 3751, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. 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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  10. Görg, Holger & Strobl, Eric, 2002. "'Footloose' Multinationals?," CEPR Discussion Papers 3402, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Bruno, Giovanni & Falzoni, Anna M, 2000. "Multinational Corporations, Wages and Employment: Do Adjustment Costs Matter?," CEPR Discussion Papers 2471, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Jozef Konings & Alan Murphy, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from Firm Level Panel Data," LICOS Discussion Papers 10001, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  14. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
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  15. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September. [Downloadable!] (restricted)
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  16. Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April. [Downloadable!] (restricted)
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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. Joel Stiebale, 2008. "Do Financial Constraints Matter for Foreign Market Entry? – A Firm-Level Examination," Ruhr Economic Papers 0051, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  2. Sascha O. Becker & Marc Andreas Muendler, 2006. "The Effect of FDI on Job Separation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Sarianna M. Lundan, 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy. [Downloadable!]
  4. Stefano Federico & Gaetano Alfredo Minerva, 2008. "Outward FDI and Local Employment Growth in Italy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 295-324, July. [Downloadable!] (restricted)
    Other versions:
  5. Jürgen Bitzer & Holger Görg, 2008. "Foreign Direct Investment, Competition and Industry Performance," Kiel Working Papers 1416, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  6. Joel Stiebale & Frank Reize, 2008. "The Impact of FDI on Innovation in Target Firms," Ruhr Economic Papers 0050, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  7. Özlem Onaran, 2008. "The effect of foreign affiliate employment on wages, employment, and the wage share in Austria," Department of Economics Working Papers wuwp118, Vienna University of Economics and B.A., Department of Economics. [Downloadable!]
  8. Ilke Van Beveren, 2006. "Footloose Multinationals in Belgium," LICOS Discussion Papers 16806, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  9. 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!]
    Other versions:
  10. Anna Maria Falzoni & Mara Grasseni, 2005. "Home Country Effects of Investing Abroad: Evidence from Quantile Regressions," CESPRI Working Papers 170, CESPRI, Centre for Research on Innovation and Internationalisation, Universita' Bocconi, Milano, Italy, revised Jun 2005. [Downloadable!]
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