Working Paper: CEPR ID: DP2524
Authors: Magnus Blomström; Ari Kokko
Abstract: Examining detailed data on Swedish MNCs during the period 1986-1994, this paper shows that there are signs of very notable structural changes in the home country operations of these corporations. It also shows that the character of these changes varies according to economic conditions in the home country. In the 1980s, when the Swedish economy was characterized as having high taxes, high inflation rates, and a tight labour market, relatively attractive jobs within the MNCs were relocated from Swedish plants to foreign affiliates. In the 1990s, by contrast, when the financial crisis had necessitated a host of micro and macroeconomic reforms, the location decisions of the MNCs were more favourable for the Swedish economy. The new jobs created by the MNCs were found in activities with relatively high productivity and wages. This suggests that the home country effects of FDI are, to a large extent, determined by the home country?s economic environment.
Keywords: FDI; Employment; Wages
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic environment in Sweden (E66) | home country effects of FDI (F23) |
| high taxes and inflation (H29) | relocation of jobs within Swedish MNCs (J62) |
| relocation of jobs within Swedish MNCs (J62) | decrease in domestic employment (J63) |
| macroeconomic reforms (E69) | new jobs created in Sweden (J68) |
| new jobs created in Sweden (J68) | activities with relatively high productivity and wages (J24) |
| jobs lost during the late 1980s (F66) | higher wages than new jobs created (J39) |