Saturday, October 10, 2009: 8:30 AM
Objectives: One major concern regarding the activity of multinational enterprises (MNE) is that by opening new foreign subsidiaries they may reduce employment in their home countries. The aim of this paper is to analyse the impact of outward foreign direct investment (FDI) by Italian multinationals on domestic employment levels and, particularly, the relationship between employment in the parent company and its foreign affiliates. Overall, earlier works seem not to support the fear that MNE are exporting domestic jobs, particularly to low-wage countries. In fact, looking at the United States, Brainard and Riker (1997) found little evidence of substitutability between parent and affiliates employment. Braconier and Ekholm (2001) for Swedish MNEs, and Konings and Murphy (2001) for a sample of European MNEs, found a relationship of substitution but only between parent firms and their affiliates in high- income countries. Instead of focusing exclusively on samples of multinational firms, and assessing whether employment in foreign affiliates substitutes for employment at the parent company, some recent studies have looked at the effect of setting up foreign plants relative to the counterfactual case of not investing abroad.. Taking into consideration a sample of Italian firms, Barba Navaretti and Castellani (2004) find no differences in employment growth between firm initiating foreign production and their counterfactual. Positive employment effects have been estimated for Japan (Hijzen et al., 2007), while in the case of Korea (Debaere et al., 2006), investing into less advanced countries decreases a company’s employment growth rate; moving instead to more advanced countries does not seem to affect employment growth.
Data/Methods: The data covers the period 2003-2008 and are related to a sample of 2314 Italian parent firms with 2729 affiliates located in the EU and 782 affiliates located in Central and Eastern Europe (CEE). The data source is the Amadeus database, provided by Bureau Van Dijk. In order to analyse the effects of outward FDI one needs to compare the firm outcomes in the presence of multinational production with the outcomes that would have prevailed in the absence of multinational production. Following recent studies, we use propensity score matching techniques to construct a valid control group of domestic firms that did not engage in multinational production but are similar in their observable characteristics to firms that did. We further combine the matching method with difference-in-differences techniques to control for unobserved fixed effects that both affect the decision to engage in multinational production and firm outcomes.
Results: While we found some evidence of a substitutionary relationship between parent firm employment in Italy and affiliate employment in CEE locations, we did not find any evidence of a relationship in either direction between parent firms employment and affiliate employment in “old” European Union members’ locations. In this respect results are different from what has previously been found for other EU countries, where relocation of employment in MNEs is taking place mainly among high wage EU countries and not so much between high wage parent countries and low wage countries.
Data/Methods: The data covers the period 2003-2008 and are related to a sample of 2314 Italian parent firms with 2729 affiliates located in the EU and 782 affiliates located in Central and Eastern Europe (CEE). The data source is the Amadeus database, provided by Bureau Van Dijk. In order to analyse the effects of outward FDI one needs to compare the firm outcomes in the presence of multinational production with the outcomes that would have prevailed in the absence of multinational production. Following recent studies, we use propensity score matching techniques to construct a valid control group of domestic firms that did not engage in multinational production but are similar in their observable characteristics to firms that did. We further combine the matching method with difference-in-differences techniques to control for unobserved fixed effects that both affect the decision to engage in multinational production and firm outcomes.
Results: While we found some evidence of a substitutionary relationship between parent firm employment in Italy and affiliate employment in CEE locations, we did not find any evidence of a relationship in either direction between parent firms employment and affiliate employment in “old” European Union members’ locations. In this respect results are different from what has previously been found for other EU countries, where relocation of employment in MNEs is taking place mainly among high wage EU countries and not so much between high wage parent countries and low wage countries.