Does It Matter Where You Invest? The Impact of FDI on Domestic Job Creation and Destruction

53 Pages Posted: 8 Mar 2021

See all articles by Bin Ni

Bin Ni

Hosei University

Hayato Kato

Osaka University

Yang Liu

Research Institute of Economy, Trade and Industry (RIETI)

Date Written: January 24, 2021

Abstract

This study uses unique division-level data of Japanese firms to examine how foreign direct investment (FDI) affects domestic employment. Contrary to most previous studies focusing on the effect on net employment growth, we decompose it into gross job creation and gross job destruction. We find that FDI destination plays an important role: FDI to Asia increases job creation, while FDI to Europe or North America decreases it. A frictional search-and-matching model with heterogeneous jobs can explain the differential effects. The model provides additional predictions on job creation and destruction by job type, which are also empirically confirmed.

Keywords: Outward FDI, firm-establishment-division-level data, multinational enterprises (MNEs), large-firm search model, high/low-skilled jobs

JEL Classification: F23; J21; J23

Suggested Citation

Ni, Bin and Kato, Hayato and Liu, Yang, Does It Matter Where You Invest? The Impact of FDI on Domestic Job Creation and Destruction (January 24, 2021). Available at SSRN: https://ssrn.com/abstract=3772286 or http://dx.doi.org/10.2139/ssrn.3772286

Bin Ni

Hosei University ( email )

Tokyo
Japan

Hayato Kato (Contact Author)

Osaka University ( email )

1-7 Machikaneyama
Toyonaka, Osaka 5600043
Japan

HOME PAGE: http://https://hayatokato.weebly.com/

Yang Liu

Research Institute of Economy, Trade and Industry (RIETI) ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
Japan

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