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Oxford Economic Papers Advance Access published online on April 17, 2009
Oxford Economic Papers, doi:10.1093/oep/gpp010
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© Oxford University Press 2009 All rights reserved

How does investing in cheap labour countries affect performance at home? Firm-level evidence from France and Italy

Giorgio Barba Navaretti*, Davide Castellani{dagger}, and Anne-Célia Disdier{ddagger}

*Università di Milano and Centro Studi Luca d’Agliano
{dagger}Università di Perugia and Centro Studi Luca d’Agliano
{ddagger}INRA, UMR Economie Publique INRA-AgroParisTech, 16 rue Claude Bernard, 75231 Paris Cedex 05, France; e-mail: Anne-Celia.Disdier{at}agroparistech.fr

JEL classifications:: F23, D21, C14


  Abstract

Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialization of the European economies. However, recent contributions have shown that the effects on home economies are rarely negative. Our paper contributes to this literature by examining how outward investments to developing and less developed countries (LDCs) affect home activities of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of investments to developed economies (DCs). The analysis is carried out by using propensity score matching. We find no evidence of a negative effect of outward investments to LDCs. In Italy they have a positive long term effect on value added and employment. For France we find a positive effect on the size of domestic output and employment.


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