The effect of non-conventional outbound foreign direct investment (FDI) on the domestic employment of multinational enterprises (MNEs)

Lee, In Hyeock (Ian); Hong, Eunsuk; Makino, Shige

Abstract

Using a sample of 787 Japanese MNEs operating in 60 countries from 1996 to 2010, this study examines the impacts of MNEs’ three most commonly observed forms of non-conventional outbound FDI (i.e., as a means to counter trade barriers, to achieve a financial hedge, or to obtain tax breaks) on domestic employment levels of MNEs at home. We build on a conceptual classification of ‘motivation-activity’ of MNEs as a theoretical framework, and evaluate the impacts of MNEs’ non-conventional outbound FDI on their domestic employment levels in relation to the MNEs’ specific combination of ‘motivation’ and ‘activity’ as they conduct outbound FDI in host countries. The 3SLS regression results show strong evidence that non-conventional outbound FDI in core business activities reduces MNEs’ domestic employment levels when the investment is primarily for responding to country-specific conditions, such as circumventing host country restrictions (e.g., FDI to counter trade barriers) or escaping from home country restrictions (e.g., FDI for tax incentive packages), while FDI in non-core business activities (e.g., FDI for financial hedging or FDI in tax havens) has either a positive or insignificant effect on MNEs’ domestic employment levels depending on whether it aims to develop FSAs or not. We conclude the study with public policy implications from these findings.

Citation

Lee, I. H. (., Hong, E., & Makino, S. (2020). The effect of non-conventional outbound foreign direct investment (FDI) on the domestic employment of multinational enterprises (MNEs). International Business Review, 29(3), Article 101671. https://doi.org/10.1016/j.ibusrev.2020.101671

• Journal Article Type: Article
• Acceptance Date: Jan 17, 2020
• Online Publication Date: Feb 13, 2020
• Publication Date: Jun 1, 2020
• Deposit Date: Feb 28, 2020
• Publicly Available Date: Feb 28, 2020
• Journal: International Business Review
• Print ISSN: 0969-5931
• Electronic ISSN: 1873-6149
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 3
• Article Number: 101671
• DOI: https://doi.org/10.1016/j.ibusrev.2020.101671
• Keywords: Non-conventional outbound FDI, Trade barriers, Financial hedge, Tax breaks, Domestic employment, Japanese MNEs