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

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  • Giorgio Barba Navaretti
  • Anna Falzoni
  • Alessandro Turrini

Abstract

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.

Suggested Citation

  • Giorgio Barba Navaretti & Anna Falzoni & Alessandro Turrini, 2001. "The decision to invest in a low-wage country: Evidence from Italian textiles and clothing multinationals," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(4), pages 451-470.
  • Handle: RePEc:taf:jitecd:v:10:y:2001:i:4:p:451-470
    DOI: 10.1080/09638190110074588
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nordås, Hildegunn Kyvik, 2004. "The global textile and clothing industry post the agreement on textiles and clothing," WTO Discussion Papers 5, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Jozef Konings & Alan Murphy, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from Firm Level Panel Data," LICOS Discussion Papers 10001, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    3. Blanas, Sotiris, 2012. "Intra-firm trade and employment in US manufacturing," Kiel Advanced Studies Working Papers 458, Kiel Institute for the World Economy (IfW).
    4. repec:eee:jbrese:v:77:y:2017:i:c:p:95-101 is not listed on IDEAS
    5. Massimo Battaglia & Francesco Testa & Lara Bianchi & Fabio Iraldo & Marco Frey, 2014. "Corporate Social Responsibility and Competitiveness within SMEs of the Fashion Industry: Evidence from Italy and France," Sustainability, MDPI, Open Access Journal, vol. 6(2), pages 1-22, February.
    6. Jesús F. Lampón & Santiago Lago-Peñas & Pablo Cabanelas, 2016. "Can the periphery achieve core? The case of the automobile components industry in Spain," Papers in Regional Science, Wiley Blackwell, vol. 95(3), pages 595-612, August.
    7. Jesús F. Lampón & Pablo Cabanelas-Lorenzo & Santiago Lago-Peñas, 2013. "Why firms relocate their production overseas? The answer lies inside: corporate, logistic and technological determinants," Working Papers 2013/3, Institut d'Economia de Barcelona (IEB).
    8. Lefilleur, Julien & Maurel, Mathilde, 2010. "Inter- and intra-industry linkages as a determinant of FDI in Central and Eastern Europe," Economic Systems, Elsevier, vol. 34(3), pages 309-330, September.
    9. W. Altzinger, 2008. "Österreichs Multinationalen Unternehmen (MNUs) und deren konzernexterner und - interner Handel," FIW Research Reports series I-023, FIW.
    10. Konings, Jozef & Murphy, Alan, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data," CEPR Discussion Papers 2972, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Foreign Direct Investment; Production Relocation; Product Differentiation;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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