abstract

Employment at a multinational enterprise (MNE) responds to wages at the extensive margin, when an MNE enters a foreign location, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric and nonparametric identification. Prior studies rarely found wages to affect MNE employment. We document a complementarity bias when the extensive margin is excluded and detect salient labor substitution at both margins for German manufacturing MNEs. With a one-percent increase in home wages, for instance, MNEs add 2,000 jobs in Eastern Europe at the extensive margin and 4,000 jobs overall; a converse one-percent drop in Eastern European wages removes 730 German MNE jobs.

keywords: Multinational enterprise; location choice; multiple sample selectivity; labor demand; translog cost function; nonparametric estimation

jel: F21, F23, C14, C24, J23

background

• supporting files
  • additional tables and graphs [pdf 385k]
• stata 8.2 code
  • complete rerun with FDI-wage interactions in selection equation (v4) [zip 697k] (2/19/2009)
  • partial rerun by horizontal-/vertical-FDI sector with FDI-wage interactions in selection equation (v4) [zip 59k] (1/13/2008)
  • partial rerun with FDI-wage interactions in selection equation (v4) [zip 459k] (12/15/2006)
  • partial rerun without FDI-wage interactions in selection equation (v3) [zip 373k] (11/14/2006)
  • accompanying ado files [zip 154k] (11/28/2006)
  • code is documented in, and directly executable through, the master programs %OrderOfPrograms.do
• auxiliary data
  • fdilabor-13nov2006.zip [zip 18,084k] (11/13/2006)
• data sources
  • midi [pdf 258k] (descriptive statistics, in german [pdf 921k])
  • ustan [pdf 289k]
  • unido indstat3 2005 isic rev. 2 [html]