How Does Investing in Cheap Labour Countries Affect Performances at Home? France and Italy
Centro Studi Luca d'Agliano Development Studies Working Paper No. 215
29 Pages Posted: 25 Jul 2006
Date Written: May 2006
Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment growth. Also for France we find a positive effect on productivity and the size of domestic activity, although not as robust and significant. Investments to developed economies from both countries have essentially scale effects but which do not trickle down on productivity at home.
Keywords: Multinational firms, productivity, propensity score matching
JEL Classification: F23, D21, C14
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
The Nature and Growth of Vertical Specialization in World Trade
By David L. Hummels, Jun Ishii, ...
Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras
Globalization, Outsourcing, and Wage Inequality
Foreign Investment, Outsourcing and Relative Wages
Integration vs. Outsourcing in Industry Equilibrium
By Gene M. Grossman and Elhanan Helpman
Firms, Contracts, and Trade Structure
By Pol Antras
The Evolving External Orientation of Manufacturing: A Profile of Four Countries
The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries
Just How Big is Global Production Sharing?
Can Vertical Specialization Explain the Growth of World Trade?
By Kei-mu Yi