DP5737 Does Where You Go Matter? The Impact of Outward Foreign Direct Investment on Multinationals' Employment at Home

Author(s): Peter Debaere, Hongshik Lee, Joonhyung Lee
Publication Date: July 2006
Keyword(s): multinationals
JEL(s): F1
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5737

How does outward foreign direct investment (FDI) affect employment growth of the multinationals (MNCs) in the home country? Does the impact of outward investment differ by the level of development of the destination country of the FDI? Using a difference-in-difference approach, we assess the impact of starting to invest in less advanced countries, of investing in more advanced countries, and of changing the direction of one?s investment from more to less advanced nations. To obtain suitable control groups in each case, we use the propensity score method to select national firms that ex post did not make investment decisions even though ex ante they would have been equally likely to each multinational. We find that moving to less advanced countries (as an initial foreign investment or as a redirection of previous investment) decreases a company?s employment growth rate. On the other hand, moving to more advanced countries does not affect employment growth in any significant way.