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How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy

Author

Listed:
  • Giorgio Barba Navaretti

    (University of Milano and Centro Studi Luca d’Agliano)

  • Davide Castellani

    (Università di Urbino and Centro Studi Luca d’Agliano)

  • Anne-Célia Disdier

    (INRA-INAPG (UMR Economie Publique) and Université de Paris 1 (CES))

Abstract

Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment growth. Also for France we find a positive effect on productivity and the size of domestic activity, although not as robust and significant. Investments to developed economies from both countries have essentially scale effects but which do not trickle down on productivity at home.

Suggested Citation

  • Giorgio Barba Navaretti & Davide Castellani & Anne-Célia Disdier, 2006. "How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy," Development Working Papers 215, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:215
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    References listed on IDEAS

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    Keywords

    multinational firms; productivity; propensity score matching;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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