Working Paper: CEPR ID: DP5737
Authors: Peter Debaere; Hongshik Lee; Joonhyung Lee
Abstract: How does outward foreign direct investment (FDI) affect employment growth of the multinationals (MNCs) in the home country? Does the impact of outward investment differ by the level of development of the destination country of the FDI? Using a difference-in-difference approach, we assess the impact of starting to invest in less advanced countries, of investing in more advanced countries, and of changing the direction of one?s investment from more to less advanced nations. To obtain suitable control groups in each case, we use the propensity score method to select national firms that ex post did not make investment decisions even though ex ante they would have been equally likely to each multinational. We find that moving to less advanced countries (as an initial foreign investment or as a redirection of previous investment) decreases a company?s employment growth rate. On the other hand, moving to more advanced countries does not affect employment growth in any significant way.
Keywords: multinationals
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| outward FDI to less advanced countries (F23) | decrease in employment growth rate (F66) |
| outward FDI to more advanced countries (F23) | null impact on employment growth rate (F66) |
| shifting investment to less developed countries (F21) | lower employment growth than not investing (O49) |
| self-selection and simultaneity issues (C34) | confounding factors influencing employment growth (J23) |
| comparison of MNCs that change investment destinations with those that do not (F23) | control for confounding factors (C90) |