Matthew J. Slaughter

Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms

Are there productivity spillovers from FDI to domestic firms, and, if so, how much should host countries be willing to pay to attract FDI? To examine these questions we use a plant-level panel covering U.K. manufacturing from 1973 through 1992. Across a wide range of specifications, we estimate a significantly positive correlation between a domestic plants TFP and the foreign-affiliate share of activity in that plantis industry. This is consistent with positive FDI spillovers. We do not generally find significant effects on plant TFP of the foreign-affiliate share of activity in that plants region. Typical estimates suggest that a 10 percentage-point increase in foreign presence in a U.K. industry raises the TFP of that industrys domestic plants by about 0.5 percent. We also use these estimates to calculate the per-job value of these spillovers. These calculated values appear to be less than per-job incentives governments have granted in recent high-profile cases, in some cases several times less.

International Trade and Labor-Demand Elasticities

In this paper I try to determine whether international trade has been increasing the own-price elasticity of demand for U.S. labor in recent years. The empirial work yields three main results. First, from 1960 through 1990 demand for U.S. production labor became more elastic in manufacturing overall and in five of eight industries within manufacturing. Second, during this time U.S. nonproduction-labor demand did not become more elastic in manufacturing overall or in any of the 8 industries within manufacturing. If anything, demand seems to be growing less elastic over time. Third, the hypothesis that trade contributed to increased elasticities has mixed support at best. For production labor many trade variables have the predicted effect for specifications with only industry contols, but these predicted effects disappear when time controls are included as well. For nonproduction labor things are somewhat better, but time continues to be a very strong predictor of elasticity patterns. Thus the time series of labor-demand elasticities are explained largely by a residual, time itself. This result parallels the common finding in studies of rising wage inequality. Just as there appears to be a large unexplained residual for changing factor prices over time, there also appears to be a large unexplained residual for changing factor demand elasticities over time.

Production transfer within multinational enterprises and American wages

Abstract This paper tests whether the transfer of production stages within US-headquartered multinational enterprises (MNEs) from US parents to foreign affiliates has contributed to within-industry shifts in US relative labor demand toward the more-skilled. There are two main empirical results. First, there is evidence of MNE transfer during the past 20 years. Second, regression analysis does not support the MNE hypothesis. MNE transfer tends to have small, imprecisely estimated effects on US relative labor demand. This finding is inconsistent with models of MNEs in which affiliate activities substitute for parent unskilled-labor-intensive activities.

Trade liberalization and per capita income convergence: a difference-in-differences analysis

Abstract In this article I analyze whether trade liberalization contributes to per capita income convergence across countries. The analysis focuses on four post-1945 multilateral trade liberalizations. To identify trade’s effect on income dispersion, in each case I use a ‘difference in differences’ approach which compares the convergence pattern among the liberalizing countries before and after liberalization with the convergence pattern among control countries, chosen using a variety of methods, before and after liberalization. My main empirical result is I find no strong, systematic link between trade liberalization and convergence. In fact, much evidence suggests trade liberalization diverges incomes among liberalizers.

Wages and International Rent Sharing in Multinational Firms

We use a unique firm-level panel of multinational parents and their foreign affiliates to analyze whether profits are shared across borders within multinational firms. Affiliate wages are estimated to respond to both affiliate and parent profitability. The elasticity of affiliate wages to parent profits per worker is approximately 0.03, which can explain over 20 of observed variation in affiliate wages. These results reveal a previously ignored aspect of rent sharing. They also reveal an important micro-level linkage with potential macro-level implications. International rent sharing can transmit economic conditions across countries, and can thereby provide an implicit risk-sharing mechanism.

Trade, Technology and UK Wage Inequality

The U.K. skill premium fell from the 1950s to the late 1970s and then rose very sharply. This paper examines the contributions to these relative wage movements of international trade and technical change. We first measure trade as changes in product prices and technical change as TFP growth. Then we relate price and TFP changes to a set of underlying factors. Among a number of results, we find that changes in prices, not TFP, were the major force behind the rise in inequality in the 1980s. We also find that although increased trade pressure has raised technical change, its effect on wage inequality was not quantitatively significant.

Labor-market adjustment in open economies: Evidence from US states

Abstract In this paper we analyze whether regional economic integration across US states conditions local labor-market adjustment. We examine the mechanisms through which states absorb changes in labor supplies and whether industry production techniques are similar across states. There are two main findings. Firstly, states absorb changes in employment primarily through changes in production techniques that are common across states and through changes in the output of traded goods, with the former mechanism playing the larger role. In contrast, state-specific changes in production techniques, which are one indication of state-specific changes in relative factor prices, account for relatively little factor absorption. Secondly, industry production techniques are very similar across states, especially for neighboring states and states with similar relative labor supplies. Both sets of results are consistent with productivity-adjusted FPE across either large states or groupings of related states.

Does the Sector Bias of Skill-Biased Technical Change Explain Changing Skill Premia? *

Abstract This paper shows the sector bias of skill-biased technical change (SBTC) can help explain changing skill premia within countries in recent decades. Our model demonstrates that in many cases it is the sector bias of SBTC that determines SBTCs effect on relative factor prices, not its factor bias. Rising (falling) skill premia are caused by SBTC that is concentrated in skill-intensive (unskill-intensive) sectors. Our empirical findings for ten OECD countries over the 1970s and 1980s are consistent with sector bias being important. In countries when skill premia were rising (falling), SBTC was generally concentrated in skill-intensive (unskill-intensive) sectors.

DOES NATIONALITY OF OWNERSHIP MATTER FOR LABOR DEMANDS

Do multinational firms exhibit different patterns of labor demand from purely domestic firms? Many standard models of trade and multinational companies suggest one such difference may be labor-demand elasticities. For several reasons, multinationals may have more-elastic labor demands than do purely domestic firms. In this paper we discuss the theory issues involved. We then present industry-level evidence that, for U.K. and U.S. manufacturing, labor demand for less-skilled labor has become more elastic in recent decades-a period in which for both countries multinational activity has expanded. (JEL: F2, L1) Copyright (c) 2003 The European Economic Association.

Foreign-Affiliate Activity and U.S. Skill Upgrading

There has been little analysis of the impact of inward foreign direct investment (FDI) on U.S. wage inequality, even though the presence of foreign-owned affiliates in the United States has arguably grown more rapidly in significance for the U.S. economy than trade flows. Using U.S. manufacturing data from 1977 to 1994, we find that inward FDI has not contributed to U.S. within-industry skill upgrading. In fact, the 1980s wave of Japanese greenfield investments was significantly correlated with lower, not higher, relative demand for skilled labor. This casts doubt upon one possible channel of skill-biased technological change that was previously unexplored.