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U.S. Multinationals and Competition from Low Wage Countries

  • David A. Riker
  • S. Lael Brainard
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    It is often argued that the globalization of production places workers in industrialized countries in competition with their counterparts in low wage countries. We examine a firm-level panel of foreign manufacturing affiliates owned by U.S. multinationals between 1983 and 1992 and find evidence to the contrary. Affiliate activities in developing countries appear to be complementary to rather than substituting for affiliate activities in industrialized countries. Workers do compete across affiliates, but the competition is between affiliates in countries with similar workforce skill levels. The results suggest that multinationals with affiliates in countries at different stages of development decompose production across borders into complementary stages that differ by skill intensity. The implied complementarity of traded intermediate inputs has important implications for the empirical debate over trade, employment, and wages.

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    File URL: http://www.nber.org/papers/w5959.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5959.

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    Date of creation: Mar 1997
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    Handle: RePEc:nbr:nberwo:5959
    Note: ITI
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    1. Robert E. Lipsey & Irving B. Kravis & Romualdo A. Roldan, 1978. "Do Multinational Firms Adapt Factor Proportions To Relative Factor Prices?," NBER Working Papers 0293, National Bureau of Economic Research, Inc.
    2. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    3. Robert J. Barro & Jong-Wha Lee, 1993. "International Comparisons of Educational Attainment," NBER Working Papers 4349, National Bureau of Economic Research, Inc.
    4. Revenga, Ana L, 1992. "Exporting Jobs? The Impact of Import Competition on Employment and Wages in U.S. Manufacturing," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 255-84, February.
    5. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Investment, Outsourcing and Relative Wages," NBER Working Papers 5121, National Bureau of Economic Research, Inc.
    6. Grossman, Gene M, 1982. "Import Competition from Developed and Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 271-81, May.
    7. Lopez-de-Silanes, Florencio & Markusen, James R. & Rutherford, Thomas F., 1994. "Complementarity and increasing returns in intermediate inputs," Journal of Development Economics, Elsevier, vol. 45(1), pages 101-119, October.
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