Margins of Multinational Labor Substitution

Marc-Andreas Muendler, Sascha O. Becker
Final draft: Oct 29, 2009
First draft: May 30, 2005
University of California, San Diego

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. Our integrated approach documents salient labor substitution for German manufacturing MNEs and removes bias. In Central and Eastern Europe, most employment responds at the extensive margin, while in Western Europe the extensive margin accounts for around two-thirds of employment shifts. At distant locations, MNEs respond to wages only at the extensive margin.

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

jel: F21, F23, C14, C24, J23

American Economic Review 2010, 100(5): 1999-2030 [doi html]

background

  • supporting files
    • online appendix [pdf 128k]
    • one-step download of data & replication instructions (aer) [zip 1.8M]
    • additional tables and graphs [pdf 488k]
  • self-executing replication: recommended steps [pdf 170k]
  • replication: stata 9.2 code
    • replication run with all endogeneity corrections and FDI-wage interactions in selection equation (v6) [zip 650k] (11/25/2009)
    • partial run without FDI-wage interactions in selection equation (v3) [zip 373k] (11/14/2006)
    • code is documented in, and directly executable through, the master program %OrderOfPrograms.do
  • auxiliary data
    • external data (german and worldwide) [zip 913k] (11/27/2009)
    • swedish mne wages (courtesy of Karolina Ekholm IUI) [zip 22k] (11/27/2009)
  • data sources
  • cesifo working paper [1713] version
  • bundesbank working paper [2006-24] version
  • iza discussion paper [2131] version
  • nber working paper [1374] version
  • full version [pdf 521k]
  • final version [pdf 454k]