Does Investing Abroad Reduce Domestic Activity? Evidence From Italian Manufacturing Firms

50 Pages Posted: 20 Mar 2011

Date Written: July 15, 2010

Abstract

The aim of this paper is to evaluate whether domestic and foreign activities of Italian firms are mainly substitutes or complements. We take advantage of a unique firm-level panel data set from the Bank of Italy Survey of Industrial and Service Firms, which provides information on the international activity of a representative sample of Italian enterprises. We use matching methods to compare the performance of firms that become multinationals with that of firms that had considered the possibility to invest abroad, but had not yet done so. Using a different approach, we supplement the counterfactual strategy by studying the conditional over-time correlation between domestic and foreign employment of a sample of multinational firms. Both methods suggest that domestic and foreign activities are more likely to be complements than substitutes. The positive correlation between domestic and foreign employment is higher for the domestic highly-skilled workforce and for firms that have adopted complex strategies of internationalization.

Keywords: foreign direct investment, multinational enterprises, matching, delocalization

JEL Classification: F2, L6, J0

Suggested Citation

Bronzini, Raffaello, Does Investing Abroad Reduce Domestic Activity? Evidence From Italian Manufacturing Firms (July 15, 2010). Bank of Italy Temi di Discussione (Working Paper) No. 769, Available at SSRN: https://ssrn.com/abstract=1786395 or http://dx.doi.org/10.2139/ssrn.1786395

Raffaello Bronzini (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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