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Multinational Production, Skilled Labor and Real Wages

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  • James R. Markusen
  • Anthony J. Venables

Abstract

Adapting our earlier model of multinationals, we address policy issues involving wages and labor skills. Multinational firms may arise endogenously, exporting their firm-specific knowledge capital to foreign production facilities, and geographically fragmenting production into skilled and unskilled-labor-intensive activities. Multinationals thus alter the nature of trade, from trade in goods (produced with both skilled and unskilled labor) to trade in skilled- labor-intensive producer services. Results shed light on several policy questions. First, multinationals increase the skilled/unskilled wage gap in the high income country and, under some circumstances, in the low income country as well. Second, there is a sense in which multinationals export low skilled jobs to the lower income country. Third, trade barriers do not protect unskilled labor in the high income countries. By inducing a regime shift to multinationals, trade barriers protect the abundant factor, at least in the high income country and possibly in both countries. Fourth, a convergence in country characteristics induces the entry of multinationals and raises the skilled-unskilled wage gap in the initially large and skilled-labor-abundant country, and possibly in the small skilled-labor-scarce country as well.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5483.

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Date of creation: Mar 1996
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Publication status: published as in Richard Baldwin (ed), Dynamic Issues in Applied Commercial Policy Analysis, Cambridge: Cambridge University Press, 1999.
Handle: RePEc:nbr:nberwo:5483

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  1. Eaton Jonathan & Tamura Akiko, 1994. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 478-510, December.
  2. Eli Berman & John Bound & Stephen Machin, 1998. "Implications Of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1245-1279, November.
  3. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc.
  4. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
  5. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-77, July.
  6. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  7. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, vol. 87(346), pages 242-61, June.
  8. Michael Ian Cragg & Mario Epelbaum, 1995. "The Premium for Skills in LDCs: Evidence from Mexico," Working Papers 9505, Centro de Investigacion Economica, ITAM.
  9. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
  10. Edward E. Leamer, 1994. "American Regionalism and Global Free Trade," NBER Working Papers 4753, National Bureau of Economic Research, Inc.
  11. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  12. S. Lael Brainard, 1993. "An Empirical Assessment of the Proximity-Concentration Tradeoff between Multinational Sales and Trade," NBER Working Papers 4580, National Bureau of Economic Research, Inc.
  13. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
  2. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  3. Marco Vivarelli & Mariacristina Piva, 2001. "The skill bias in Italy: a first report," Economics Bulletin, AccessEcon, vol. 15(2), pages 1-8.
  4. Francois, Joseph & Grier, Kevin Blaine & Nelson, Douglas, 2004. "Globalization, Roundaboutness and Relative Wages," CEPR Discussion Papers 4406, C.E.P.R. Discussion Papers.
  5. Markusen, James R. & Venables, Anthony J. & Eby Konan, Denise & Zhang, Kevin H., 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," Working Paper Series 465, Research Institute of Industrial Economics.
  6. Arti Grover, 2010. "Outsourcing Versus Foreign Direct Investment: A Welfare Analysis," Working Papers id:3010, eSocialSciences.
  7. Joseph Francois, 2004. "Assessing the Impact of Trade Policy on Labor Markets and Production," Tinbergen Institute Discussion Papers 04-058/2, Tinbergen Institute.
  8. Shalah Mostashari, 2011. "Vertical specialization, intermediate tariffs, and the pattern of trade: assessing the role of tariff liberalization to U.S. bilateral trade 1989-2001," Globalization and Monetary Policy Institute Working Paper 71, Federal Reserve Bank of Dallas.
  9. David Rigby & Sebastien Breau, 2006. "Impacts of Trade on Wage Inequality in Los Angeles: Analysis Using Matched Employer-Employee Data," Working Papers 06-12, Center for Economic Studies, U.S. Census Bureau.
  10. Joseph Francois & Douglas R. Nelson, 2000. "Victims of Progress: Economic Integration, Specialization, and Wages for Unskilled Labor," Tinbergen Institute Discussion Papers 00-065/2, Tinbergen Institute.
  11. Natalia Vechiu & Farid Makhlouf, 2014. "Economic integration and specialization in production in the EU27: does FDI influence countries’ specialization?," Empirical Economics, Springer, vol. 46(2), pages 543-572, March.
  12. Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics.

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