Do Multinational Firms Adapt Factor Proportions To Relative Factor Prices?
AbstractIt has been alleged that multinational firms fail to adapt their methods of production to take advantage of the abundance and low price of labor in less developed countries and therefore contribute to the unemployment problems of these countries. This paper asks two questions: do multi-national firms adapt to labor cost differences by using more labor-intensive methods of production in LDC's than in developed countries and do multinational firms' affiliates in LDC's use more capital-intensive methods than locally-owned firms? We concluded that both U.S.-based and Swedish-based firms do adapt to differences in labor cost, using the most capital-intensive methods of production at home and the least capital-intensive methods in low-wage countries. Among host countries, the higher the labor cost, the higher the capital intensity of production for manufacturing as a whole, within individual industries, and within individual companies. When we attempted to separate the capital-intensity differences into choice of technology and method of operation within a technology we found that firms appeared to choose capital-intensive technologies in LDC's but then responded to low wage levels there by substituting labor for capital within the technology. Similarly, U.S. affiliates appeared to use technologies similar to those of locally-owned firms but to operate in a more capital-intensive manner mainly because they faced higher labor costs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0293.
Date of creation: Oct 1978
Date of revision:
Publication status: published as Do Multinational Firms Adapt Factor Proportions to Relative Factor Prices? , Robert E. Lipsey, Irving Kravis. in Trade and Employment in Developing Countries, vol. 2: Factor Supply and Substitution , Krueger. 1982
Note: ITI IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Robert E. Lipsey & Irving Kravis, 1982. "Do Multinational Firms Adapt Factor Proportions to Relative Factor Prices?," NBER Chapters, in: Trade and Employment in Developing Countries, vol. 2: Factor Supply and Substitution, pages 215-256 National Bureau of Economic Research, Inc.
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.:
- Leipziger, Danny M., 1976. "Production characteristics in foreign enclave and domestic manufacturing: The case of India," World Development, Elsevier, vol. 4(4), pages 321-325, April.
- Hal B. Lary, 1968. "Imports of Manufactures from Less Developed Countries," NBER Books, National Bureau of Economic Research, Inc, number lary68-1, June.
- Courtney, William H & Leipziger, Danny M, 1975. "Multinational Corporations in LDCs: The Choice of Technology," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 37(4), pages 297-304, November.
- Riveros, Luis A., 1989. "International differences in wage and nonwage labor costs," Policy Research Working Paper Series 188, The World Bank.
- J Hatzius, 1997. "Domestic Jobs and Foreign Wages: Labour Demand in Swedish Multinationals," CEP Discussion Papers dp0337, Centre for Economic Performance, LSE.
- Lois E. Stekler & Guy V. G. Stevens, 1991. "The adequacy of U.S. direct investment data," International Finance Discussion Papers 401, Board of Governors of the Federal Reserve System (U.S.).
- Fanti, Luciano & Gori, Luca, 2010.
"On economic growth and minimum wages,"
25842, University Library of Munich, Germany.
- Maria Borga & Robert E. Lipsey, 2004. "Factor Prices and Factor Substitution in U.S. Firms' Manufacturing Affiliates Abroad," NBER Working Papers 10442, National Bureau of Economic Research, Inc.
- David A. Riker & S. Lael Brainard, 1997. "U.S. Multinationals and Competition from Low Wage Countries," NBER Working Papers 5959, National Bureau of Economic Research, Inc.
- Claro, Sebastian, 2008.
"FDI Liberalization as a Source of Comparative Advantage in China,"
Working Paper Series
RP2008/91, World Institute for Development Economic Research (UNU-WIDER).
- Sebastian Claro, 2009. "FDI Liberalization as a Source of Comparative Advantage in China," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 740-753, November.
- Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.