Multinational Firms and Impacts on Employment, Trade, and Technology: New Perspectives for a New Century

By Robert E. Lipsey; Jean-Louis Mucchielli | Go to book overview

1

FOREIGN PRODUCTION BY US FIRMS AND PARENT FIRM EMPLOYMENT *

Robert E. Lipsey


1.1.

Introduction

There has long been a suspicion in the United States that investment abroad by US firms, especially manufacturing firms, involves replacing US workers by foreign workers, with a resulting loss of employment and decline in wages for the firms' workers in the United States. That suspicion was probably at its peak during the late 1960s and the 1970s, and has declined somewhat since then, but it still exists. Worries about the impact of outward foreign direct investment (FDI) led to Congressional proposals to restrict it and to administration measures to limit its financing in the United States.

The adverse effect on home labor was thought to occur through two main channels. One was the replacement of home production for the US market by imports from the affiliates and the other was the replacement of home production for export by affiliate production in the host countries. Since imports into the United States from manufacturing affiliates abroad were relatively small, most attention was focused on export replacement. However, a series of studies of export replacement failed to find evidence that it had taken place. Most studies, including parallel ones for Swedish firms, seemed to find that the net effect of affiliate production on parent exports was positive, if there was any effect at all. For the most part, these studies have found little or no effect or found that production abroad, on

*This paper was prepared for presentation at the Seventh International Conference of the Sorbonne, at the University of Paris I Pantheon-Sorbonne. Partial support for the paper was provided by the Commissariat Général du Plan of France under Contract No. 4/1998. I am indebted for helpful comments on the paper to Deborah Swenson, of the University of California-Davis, the discussant at the Sorbonne Conference, to other participants at that meeting, and to Johan Norbeck, of the Research Institute of Industrial Economics, Stockholm, the discussant at a session of the Western Economic Association in July 1999. I am also indebted to Shachi Chopra-Nangia and Li Xu for skillful assistance in preparing the paper.

-3-

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