Downward Wage Rigidity in Europe: A New Flexible Parametric Approach and Empirical Results

Abstract

Abstract:A number of recent studies nd evidence for the existence of a persistent performance gap between multinational enterprises (MNE) and their domestic competitors. Therefore, the question arises whether successful rms become MNEs or whether going abroad improves home market performance. This paper investigates to what extent MNEs have superior performance characteristics, both prior to and after they have switched from national to multinational activities. In the rst case results are quite clear: Future multinationals outperform domestic rms. Since self-selection occurs, an endogenous treatment approach is necessary for comparing ex-post performance of rms. Using probit estimates of the decision to become a MNE, Heckman's (1978) treatment model is applied to account for potential endogeneity issues. The results suggest that after switching, both productivity and wage growth are higher for newly founded MNEs than for national rms. Employment growth is superior before switching but does not exhibit signi cantly higher ex-post growth rates. Moreover, capital intensities at multinationals evolve towards the use of capital. Keywords:Multinational enterprises; productivity; endogenous treatment JEL-Classi cation:F10, F21, F23, D24 Non Technical SummaryThis paper investigates to what extent a regime change from national to multinational activities (switching) affects home market performance of parent rms relative to purely national rms in Germany. The analysis is conducted both prior to and after rms have gone multinational. In order to assess a broad range of rm attributes, I have constructed ve different performance measures: 1) rm size; 2) total factor productivity (TFP); 3) labour productivity; 4) average wage per rm; 5) capital intensities. Since multinationals do not arise randomly -only good rms accept the risk to invest abroad -Heckman's (1978) treatment model is used to account for potential endogeneity issues in the ex-post analysis.Theoretical predictions are clear cut if ex-ante (before switching) performance differences between switchers and nationals are considered. When starting up or acquiring foreign af liates, rms need to overcome legal, cultural, and social barriers.Only good rms are able to cope with this kind of x ed costs and, thus, self-select into foreign markets. Whether the regime change from national to multinational activities also improves home market performance after switching is less obvious.If there is no other alternative to serve foreign markets besides the set-up or acquisition of an af liate (horizontal perspective), becoming a MNE would have no negative or even positive effects on domestic operations. If, in contrast, the purpose of a multinational's foundation is to vertically divide its production process, performance measures could rise or decline. The question whether investing abroad improves home market performance or not is therefore essentially an empirical issue.My ndings provide clear evidence throughout the following points: During the years prior to the regime cha...

Foreign and Domestic Takeovers in Germany: Cherry-picking and Lemon-grabbing

“…A similar mechanism can be observed for domestic companies, when above average performing firms self-select into multinationality (e.g. Jäckle and Wamser, 2009 for Germany).…”

Die deutsche Statistik über Direktinvestitionen: Neuerungen und wissenschaftliche Nutzung

“…Arnold u. Hussinger (2006) konnten bestätigen, dass multinationale Unternehmen produktiver sind als Exporteure und diese produktiver als rein nationale Unternehmen. Jäckle (2006) hat allerdings gezeigt, dass bereits derÜbergang vom nationalen zum multinationalen Unternehmen positive Auswirkungen auf die Leistungsfähigkeit hat.…”

Productivity and the Internationalization of Firms – Cross-Border Acquisitions Versus Greenfield Investments

“…Several empirical studies report a productivity advantage of established MNEs over exporters (Greenaway & Kneller, 2007;Tomiura, 2007;Arnold & Hussinger, 2010), with some evidence that large and more productive firms self-select to become MNEs (Girma et al, 2005;Jäckle & Wamser, 2010;Damijan et al, 2007). To the best of my knowledge there is no study that takes into account the two modes of FDI in addition to the firms' exporting decision with an explicit differentiation of mobile and non-mobile industries.…”