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International Rent Sharing and Domestic Labour Markets: A Macroeconomic Analysis

  • W. Jos Jansen
  • Ad C.J. Stokman

Foreign subsidiaries account for a significant part of output in many industrialised countries. Compared to international trade relations, however, relatively little is known about the role foreign direct investment linkages play 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 for six countries whether a cross-border rent-sharing phenomenon can be identified at the macroeconomic level. The rent-sharing hypothesis implies that an increase in foreign profitability should boost wages and/or employment in the domestic economy. We find corroborative evidence for Belgium, France, Germany, the Netherlands and the UK. US labour market conditions, by contrast, are not affected by changes in profitability in other countries, which could be explained by the still relatively modest role of foreign-owned capital in the American economy. Hence, international rent sharing might be an important aspect of global economic linkages.

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Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-14.

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Date of creation: Oct 2003
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Handle: RePEc:dnb:mebser:2003-14
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  1. David G. Blanchflower & Andrew J. Oswald & Peter Sanfey, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 227-251.
  2. Frank A.G. den Butter & Robert H.J. Mosch, 2003. "The Dutch Miracle: Institutions, Networks, and Trust," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(2), pages 362-, June.
  3. John W. Budd & Jozef Konings & Matthew J. Slaughter, . "International Rent Sharing in Multinational Firms," Working Papers 0202, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  4. 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.
  5. L Christofides & A Oswald, 1991. "Real Wage Determination and Rent-Sharing in Collective Bargaining Agreements," CEP Discussion Papers dp0042, Centre for Economic Performance, LSE.
  6. F. Fakhfakh & F. Fitzroy, 2003. "Basic Wages and Firm Characteristics : Rent-sharing in French Manufacturing," Working Papers ERMES 0311, ERMES, University Paris 2.
  7. Budd, John W. & Konings, Jozef & Slaughter, Matthew J., 2002. "Wages and International Rent Sharing in Multinational Firms," IZA Discussion Papers 560, Institute for the Study of Labor (IZA).
  8. Jeroen J. M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992. "The power of cointegration tests," International Finance Discussion Papers 431, Board of Governors of the Federal Reserve System (U.S.).
  9. Berben, Robert-Paul & Jansen, W. Jos, 2005. "Comovement in international equity markets: A sectoral view," Journal of International Money and Finance, Elsevier, vol. 24(5), pages 832-857, September.
  10. Arai, Mahmood, 1999. "Wages, Profits and Capital Intensity: Evidence from Matched Worker-Firm Data," Research Papers in Economics 1999:3, Stockholm University, Department of Economics.
  11. Oswald, Andrew, 1996. "Rent-Sharing in the Labor Market," The Warwick Economics Research Paper Series (TWERPS) 474, University of Warwick, Department of Economics.
  12. Martins, Pedro S., 2004. "Rent Sharing Before and After the Wage Bill," IZA Discussion Papers 1376, Institute for the Study of Labor (IZA).
  13. 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.
  14. 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.
  15. Louis N. Christofides & Andrew J. Oswald, 1989. "Real Wage Determinatioan in Collective BArgaining Agreements," NBER Working Papers 3188, National Bureau of Economic Research, Inc.
  16. 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.
  17. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth; A Summary of the Recent Literature," IMF Working Papers 01/175, International Monetary Fund.
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