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International Rent Sharing and Domestic Labor Markets: A Macroeconomic Analysis

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Author Info
W. Jos Jansen (De Nederlandsche Bank)
Ad C.J. Stokman (De Nederlandsche Bank)

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Abstract

Foreign-owned firms account for a significant part of output in many industrialized countries. However, compared to international trade linkages, relatively little is known about the role of foreign direct investment linkages and multinational firm behavior 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 phenomenom 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. In four continental European countries and the UK, labour market conditions (wages and/or employment) are significantly affected by profitability conditions abroad. By contrast, the US labour market does not appear to be sensitive to changes in profitability in other countries, which could be explained by the still relatively modest role of foreign-owned capital in the US economy.

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Paper provided by EconWPA in its series Macroeconomics with number 0312008.

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Length: 28 pages
Date of creation: 24 Dec 2003
Date of revision:
Handle: RePEc:wpa:wuwpma:0312008

Note: Type of Document - pdf; prepared on PC Win98; to print on A4 page format; pages: 28; figures: within document
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Related research
Keywords: foreign direct investment international rent sharing labour markets international linkages spillovers

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Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  1. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1992. "Wages, Profits and Rent-Sharing," NBER Working Papers 4222, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Christofides, Louis N & Oswald, Andrew J, 1992. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 985-1002, August. [Downloadable!] (restricted)
    Other versions:
  3. Martins, Pedro S., 2004. "Rent Sharing Before and After the Wage Bill," IZA Discussion Papers 1376, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. John W. Budd & Jozef Konings & Matthew J. Slaughter, 2005. "Wages and International Rent Sharing in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 73-84, November. [Downloadable!] (restricted)
    Other versions:
  5. 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!]
    Other versions:
  6. 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. [Downloadable!]
    Other versions:
  7. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
    Other versions:
  8. Butter, Frank A.G. den & Mosch, Robert H.J., 2001. "the Dutch miracle: institutions, networks and trust," Serie Research Memoranda 0018, Free University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
    Other versions:
  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. Fathi Fakhfakh & Felix FitzRoy, 2004. "Basic Wages and Firm Characteristics: Rent Sharing in French Manufacturing," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 18(4), pages 615-631, December. [Downloadable!] (restricted)
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  11. J Hatzius, 1997. "Foreign Direct Investment," CEP Discussion Papers 0336, Centre for Economic Performance, LSE. [Downloadable!]
  12. 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. [Downloadable!] (restricted)
  13. W.Jos Jansen & Ad C.J.Stokman, 2003. "Foreign Direct Investment and International Business Cycle Comovement," MEB Series (discontinued) 2003-10, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
    Other versions:
  14. 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. [Downloadable!] (restricted)
  15. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November. [Downloadable!] (restricted)
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