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Production and Trade in Services by U.S. Multinational Firms

  • Irving B. Kravis
  • Robert E. Lipsey

Direct investment in foreign countries by U.S. goods industries represents a response to differences in labor costs to a much greater extent than the more rapidly growing investment by service industries. The latter seem to be less able to allocate different types of production to different areas of the world, probably because services are less tradable than goods; they must more often be produced where they are consumed or consumed where they are produced. Therefore, while direct Investment abroad in goods industries represents an allocation of production that Increases the demand for high-skill labor and for R & D input in the U.S. and decreases the demand for low-skill labor, direct investment in service industries, while it increases a firm's share of foreign markets, is likely to have little effect on the firm's demand for labor in the U.S. or on the composition of its labor force.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2615.

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Date of creation: Jun 1988
Date of revision:
Publication status: published as "Parent Firms and their Foreign Subsdiaries in Goods and Service Industries" , International Trade and Finance Association, 1992, Proceedings, pp. 207-222. See also NBER Reprint #1828 and NBER Working Paper #2760.
Handle: RePEc:nbr:nberwo:2615
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  1. Magnus Blomstrom & Robert E. Lipsey & Ksenia Kulchycky, 1988. "U.S. and Swedish Direct Investment and Exports," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 257-302 National Bureau of Economic Research, Inc.
  2. Branson, William H. & Monoyios, Nikolaos, 1977. "Factor inputs in U.S. trade," Journal of International Economics, Elsevier, vol. 7(2), pages 111-131, May.
  3. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, vol. 94(374), pages 279-86, June.
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