The effects at home of initiating production abroad: evidence from matched French firms

• Published in: Review of world economics Vol. 147; no. 3; pp. 457 - 483
• Main Authors: Hijzen, Alexander, Jean, Sébastien, Mayer, Thierry
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer 01-09-2011; Springer-Verlag; Springer Nature B.V; Springer Verlag
• Subjects: Business structures; Contrafactuals; Economic Policy; Economic theory; Economics; Economics and Finance; Economics, International; Employment; Employment creation; Estimation; European Integration; Foreign direct investment; Foreign direct investments; Foreign investment; Foreign investments; France; Global economy; Host countries; International Economics; Investment strategies; Investors; Labor policy; Macroeconomics/Monetary Economics//Financial Economics; Manufacturing; Manufacturing industries; Multinational corporations; Multinational enterprises; Offshoring; Original Paper; Outsourcing; Perceptual localization; Production; Production measurement; Production planning; Quantitative Finance; Relocation; Subcontracting; Technology; Utilities; Services; Delocalisation; F21; F23; Foreign direct investment; Propensity score matching; F14; Multinationals
• ISSN: 1610-2878; 1610-2886
• DOI: 10.1007/s10290-011-0094-x

Based on matching techniques in combination with a difference-indifference estimator, this paper estimates the effects at home of initiating production abroad through the establishment of a foreign production affiliate. The analysis covers manufacturing and service firms active in France during the period 1987-1999. We show that the motivation to start producing abroad is an important determinant of its impact at home. Market-seeking foreign direct investment (FDI) in manufacturing is associated with significant scale effects, resulting in job creation. By contrast, factor-seeking FDI in manufacturing has no significant effect on employment. However, there is some evidence that this type of FDI is associated with technology effects, in the form of greater capital-intensity and efficiency, as well as larger exports. Finally, FDI in service sectors is associated with significant positive employment effects, presumably reflecting the importance of the marketseeking motive in these sectors.