Footloose Multinationals?
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High-profile plant closures and job-cuttings by multinational companies have refuelled the criticism that these firms are highly footloose, quick to shift their production facilities from one country to another if the current economic environment changes to their disadvantage. One example is the US car manufacturer Ford, which announced the end of car assembly at its Dagenham plant near London, leading to 1,100 job losses, as well as 1,400 jobs lost at its plant in Genk, Belgium as part of a strategy of restructuring European operations.
But research by Holger Görg and Eric Strobl, presented at the Royal Economic Society’s Annual Conference, suggests that the argument is not as clear-cut as critics of multinationals make it seem. While a comparison of foreign multinationals and domestic plants shows that the former are about 40% more likely to exit an industry than comparable domestic plants, new jobs created in multinationals are about 10% more likely to survive than jobs created in similar domestic plants.
Görg and Strobl investigate the claim that affiliates of multinational companies are more footloose than domestic plants by focusing on two different facets of the issue: plant survival as well as the persistence of newly created jobs in a plant over time. Their study looks at manufacturing plants in the Republic of Ireland, where foreign multinationals account for about half of manufacturing employment, three-quarters of net output produced, and over 80% of manufacturing exports.
Estimating the determinants of plant survival, Görg and Strobl find that plants belonging to multinationals located in Ireland have lower survival rates than comparable domestic plants – about 40% lower. In addition, foreign plants react differently to changes in some of the factors determining survival, such as plant size or sectoral conditions. Taken together, this may be interpreted as evidence that multinationals are more footloose than comparable domestic plants.
It is a different question, however, as to whether this higher probability of exiting also means that employment in multinationals is more unstable than employment in domestic plants. Focusing only on continuing plants, these researchers analyse the factors that determine whether employment changes at the plant level persist over time. Estimating the determinants of the survival of new jobs created in foreign and domestic plants, they find that jobs created in the former are more likely to persist (by about 10%) than those created by similar domestic firms. This result does not lend support to the claim that employment in multinationals is more unstable than in domestic plants.
These results suggest that employment decisions in multinationals are made with a longer time horizon in mind than in domestic plants. Multinationals seem to be more likely to create new jobs only if they expect those jobs to last in the long run while domestic plants base job creation decisions more on a short-term basis.
Notes
Footloose Multinationals by Holger GÃrg and Eric Strobl was presented at the Royal Economic Society’s 2002 Annual Conference at the University of Warwick.
Holger Görg is at the Leverhulme Centre for Research on Globalisation and Economic Policy in the School of Economics at the University of Nottingham; Strobl is in the Department of Economics at University College Dublin.
For Further information contact Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).
Related information
The working paper Footloose Multinationals is available to download, you can find other publications by these authors, related research and citations from IDEAS and you can search for more Internet resources on the topic of Multinationals on SOSIG.
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