WHY FOREIGN OWNERSHIP MAY BE GOOD FOR YOU*

Hartmut Egger · Udo Kreickemeier

39 citations0/0 files storedInternational Economic Review

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Global trade and economics International Business and FDI Labor market dynamics and wage inequality

Abstract

We develop a two‐country model with heterogeneous producers and rent‐sharing at the firm level. We identify two sources of a multinational wage premium: A composition effect because multinational firms are more productive, make higher profits, and pay higher wages, and a firm‐level wage effect, because a firm makes higher global profits and thus pays higher wages in its home market when becoming multinational. With two identical countries, the wage premium is fully explained by firm characteristics. Allowing for technology differences between countries, a residual wage premium exists in the technologically backward country but not in the advanced country.

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References

2003The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity 2004Export Versus FDI with Heterogeneous Firms 1989Handbook of Labor Economics 1990The Fair Wage-Effort Hypothesis and Unemployment 1984A Simple Theory of International Trade with Multinational Corporations 2002Multinational Firms and the Theory of International Trade 2014National and International Returns to Scale in the Modern Theory of International Trade 1984Multinationals, multi-plant economies, and the gains from trade

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