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The decision to invest in a low-wage country: Evidence from Italian textiles and clothing multinationals

  • Giorgio Barba Navaretti
  • Anna Falzoni
  • Alessandro Turrini

In this paper we investigate the firm-specific factors that account for the decision to invest in low-wage countries on the part of Italian firms in the textiles and clothing sector. This analysis is motivated by the fact that our survey data show, between 1990 and 1997, a decline of average employment in parent companies, while that in subsidiaries grew substantially. However, correlation and regression analysis show that employment in parent companies that invested in low-wage countries only seems to be negatively related with employment abroad. Our hypothesis is that investments in cheap labour countries are mainly cost-driven and are undertaken by firms that focus on a low-quality, low-cost strategy. We test this hypothesis through a probit analysis. The evidence suggests that investments to cheap labour countries are more likely to be of a vertical type, being relatively more labour-intensive compared with the parent company. Our hypothesis seems to be confirmed empirically. Investments in low-wage countries are more likely to generate abundant intra-firm trade and to be undertaken by firms with low shares of skilled employment.

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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 10 (2001)
Issue (Month): 4 ()
Pages: 451-470

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Handle: RePEc:taf:jitecd:v:10:y:2001:i:4:p:451-470
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