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Why foreign ownership may be good for you

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  • Egger, Hartmut
  • Kreickemeier, Udo

Abstract

We develop a general equilibrium two-country model with heterogeneous producers and rent sharing at the firm level due to fairness preferences of workers. We identify two sources of a multinational wage premium. On the one hand, there is a pure composition effect because multinational firms are more productive, make higher profits, and therefore pay higher wages. On the other hand, there is a firm-level wage effect: A multinational firm pays higher wages in its home market than an otherwise identical national firm since it has higher global profits. We analyse how these two sources interact in determining the multinational wage premium in a setting with two identical countries, and show that in this case the wage premium is fully explained by firm characteristics. We then allow for technology differences between countries and find that a residual wage premium exists in the technologically backward country, but not in the advanced country. --

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Bibliographic Info

Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 19.

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Date of creation: 2011
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Handle: RePEc:zbw:tuewef:19

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Keywords: multinational firms; wage premium; heterogeneous firms;

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References

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Citations

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Cited by:
  1. Teixeira, Aurora A.C. & Tavares-Lehmann, Ana Teresa, 2014. "Human capital intensity in technology-based firms located in Portugal: Does foreign ownership matter?," Research Policy, Elsevier, Elsevier, vol. 43(4), pages 737-748.
  2. Defever, Fabrice & Toubal, Farid, 2011. "Productivity, Relationship-Specific Inputs and the Sourcing Modes of Multinationals," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8656, C.E.P.R. Discussion Papers.
  3. Bircan, Çağatay, 2011. "Foreign Direct Investment and Wages: Does the Level of Ownership Matter?," Working Papers, Research Seminar in International Economics, University of Michigan 618, Research Seminar in International Economics, University of Michigan.

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