Working Paper: CEPR ID: DP5765
Authors: Giorgio Barba Navaretti; Davide Castellani; Anneclia Disdier
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. For France we find a positive effect on the size of domestic activity. Investments to developed economies from both countries have essentially scale effects which eventually trickle down on employment and productivity at home.
Keywords: multinational firms; productivity; propensity score matching
JEL Codes: C14; D21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Outward investments to cheap labour countries (LDCs) (F21) | enhance efficiency of home activities (D13) |
| Outward investments to cheap labour countries (LDCs) (F21) | increase output at home (E23) |
| Outward investments to cheap labour countries (LDCs) (F21) | increase employment at home (J68) |
| Outward investments in developed economies (F21) | no increased productivity at home (D13) |
| Outward investments in developed economies (F21) | associated with scale effects (R12) |
| Investments in cheap labour countries (LDCs) (F21) | concentration on skill and technology-intensive tasks at home (O39) |
| Concentration on skill and technology-intensive tasks at home (O39) | increases productivity and value added (O49) |