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Multinational Production and Labor Share

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  • ADACHI Daisuke
  • SAITO Yukiko

Abstract

We study the effect of multinational enterprises (MNEs) on the decreased labor share of income distribution in the source country. We develop a general equilibrium model that features a heterogeneous firms and non-parametric production function, with augmented foreign factors to capture foreign employment First-order approximation points out that the differences in the factor demand elasticities are key parameters for the implication to the labor share. To identify them, we develop a method-of-moments estimator that leverages foreign factor augmentation shocks. We then apply the method to a unique natural experiment, the 2011 Thailand Floods and study the impact on Japanese multinational firms. We employ uniquely combined Japanese firm- and foreign affiliate- level datasets. The estimate indicates that foreign factor augmentation increased capital demand in Japan more than labor demand, which suggests that the foreign factor augmentation reduced the labor share in Japan.

Suggested Citation

  • ADACHI Daisuke & SAITO Yukiko, 2020. "Multinational Production and Labor Share," Discussion papers 20012, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:20012
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    1. Hayato Kato & Toshihiro Okubo, 2022. "The Resilience of FDI to Natural Disasters Through Industrial Linkages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 177-225, May.
    2. Koyo Miyoshi, 2021. "The Decline in the Labor Share: Evidence from Japanese Manufacturers f Panel Data," Discussion papers ron340, Policy Research Institute, Ministry of Finance Japan.

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