Multinationals and Structural Transformation
Abstract: We study how multinational corporations (MNCs) shape firm-level and aggregate structural transformation. Using confidential microdata from Japan and exploiting a quasi-exogenous reform that expanded foreign investment opportunities in China, we assess empirically how this reform affected employment at firms in both the host country (China) and the home country (Japan). In liberalized industries, Japanese manufacturing affiliates in China expanded employment, while parent firms in Japan shifted out of manufacturing and into higher-value service activities, including R&D. To assess the broader relevance of this mechanism, we use microdata from several advanced and middle-income economies, and show that MNCs account for the majority of the middle-income countries' reallocation to manufacturing.
DOI: https://doi.org/10.24149/wp2608