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

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  • Jozef Konings
  • Alan Patrick Murphy

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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Bibliographic Info

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

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

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

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Cited by:
  1. Martin Falk, 2008. "Testing Gibrat's Law for European Multinational Enterprises," FIW Research Reports series I-014, FIW.
  2. Joel Stiebale & Michaela Trax, 2010. "The Eff ects of Cross-border M&As on the Acquirers’ Domestic Performance – Firm-level Evidence," Ruhr Economic Papers 0159, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. 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.
  4. S. Federico & G.A. Minerva, 2006. "Outward FDI and Local Employment Growth in Italy," Working Papers 572, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Martin Falk & Yvonne Wolfmayr, 2008. "The Impact of Outward FDI in Central and Eastern Europe on Employment in the EU-15 Countries," FIW Research Reports series I-016, FIW.
  6. 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.

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