Employment in domestic plants and foreign affiliates: A note on the elasticity of substitution |
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Authors: | Michael Pfaffermayr |
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Institution: | (1) Istituto Economia e Finanza, University of Rome, La Sapienza, Rome, Italy;(2) Second University of Naples, Capua, Italy;(3) Sociologia e Comunicazione, University of Rome, La Sapienza, Rome, Italy |
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Abstract: | Conclusions For a high-wage country like Austria, it is commonly expected that growing employment in foreign affiliates substitutes jobs
at home. This paper provides a simple framework for estimating the determinants of relative labor demand (abroad in relation
to that at home) bilaterally. It is based on the relationship of (dis)economies and transportation costs under the hypothesis
that goods trade is an imperfect substitute for foreign production in the case of horizontal investments, while with respect
to vertical investments, goods trade is solely dependent on relative market size. The estimates are based on bilateral industry-level
data on foreign affiliates and the domestic activities of Austrian manufacturing firms, covering the period 1990–1996, the
10 most important host countries and 7 industrial sectors. |
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Keywords: | |
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