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

See all articles by Giorgio Barba Navaretti

Giorgio Barba Navaretti

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM); University of Milan - Centro Studi Luca d'Agliano (LdA)

Davide Castellani

Henley Business School

Anne-Celia Disdier

National Institute for Agricultural Research (INRA) - UMR Economie Publique

Date Written: May 2006

Abstract

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

Barba Navaretti, Giorgio and Castellani, Davide and Disdier, Anne-Celia, How Does Investing in Cheap Labour Countries Affect Performances at Home? France and Italy (May 2006). Centro Studi Luca d'Agliano Development Studies Working Paper No. 215, Available at SSRN: https://ssrn.com/abstract=918435 or http://dx.doi.org/10.2139/ssrn.918435

Giorgio Barba Navaretti (Contact Author)

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy
+390250321521 (Phone)

University of Milan - Centro Studi Luca d'Agliano (LdA) ( email )

Via Donizzatti 38
Milano, Mi 20122
Italy
+39 02 36683850 (Phone)

Davide Castellani

Henley Business School ( email )

Whiteknights
Reading, Berkshire RG6 6UD
United Kingdom

Anne-Celia Disdier

National Institute for Agricultural Research (INRA) - UMR Economie Publique ( email )

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