Advertisement

Journal of International Business Studies

, Volume 45, Issue 4, pp 450–470 | Cite as

Cross-border mergers and domestic-firm wages: Integrating “spillover effects” and “bargaining effects”

  • Joseph A Clougherty
  • Klaus Gugler
  • Lars Sørgard
  • Florian W Szücs
Article

Abstract

Two literatures exist concerning cross-border merger activity’s impact on domestic wages: one focusing on positive spillover effects; the other focusing on negative bargaining effects. Motivated by scarce theoretical scholarship spanning these literatures, we nest both mechanisms in a single conceptual framework. Considering the separate phenomena of inward and outward cross-border merger activity, our theoretical model generates three formal propositions: cross-border mergers can lead to wage increases via positive spillover effects; and negative bargaining effects are relatively more dominant when union market power is high, and when merging firms exhibit relatedness. Employing US firm-level panel data on wages combined with industry-level data on unionization and merger activity (covering 1989–2001), we find support for our propositions as inward and outward cross-border merger activity generate positive spillovers to wages, but are more likely to generate firm-level wage decreases when unionization rates are high and when cross-border merger activity is characterized as horizontal. Accordingly, future research on how cross-border mergers affect domestic wages should be mindful that both spillover and bargaining effects are at play, and that the degree of union market power and the relatedness of cross-border merger activity are critical in determining which effect dominates.

Keywords

multinational corporations (MNCs) and enterprises (MNEs) foreign direct investment bargaining econometrics spillovers wages 

Notes

Acknowledgements

We wish to thank ESMT-Berlin for institutional support, Claudia Baldermann for research assistance, and Sørgard thanks the Norwegian Research Council for financial support through the project “improving competition policy” on SNF. We greatly appreciate comments and suggestions by our editor (Ram Mudambi), Ragnhild Balsvik, Tomaso Duso, anonymous referees, and during presentations at the 2010 EARIE in Istanbul, University of Stavanger in March 2011, 2011 IIOC in Boston, 2012 AIB in DC, and the 2012 JIBS special issue conference on the “Multinational in Geographic Space”.

References

  1. Aitken, B. J., & Harrison, A. E. 1999. Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review, 89 (3): 605–618.CrossRefGoogle Scholar
  2. Aitken, B. J., Harrison, A. E., & Lipsey, R. E. 1996. Wages and foreign ownership: A comparative study of Mexico, Venezuela and the United States. Journal of International Economics, 40 (3–4): 345–371.CrossRefGoogle Scholar
  3. Andrews, M., Bellman, L., Schank, T., & Upward, R. 2009. The takeover and selection effects of foreign-owned establishments: An analysis using linked employer-employee data. Review of World Economics, 145 (2): 293–317.CrossRefGoogle Scholar
  4. Ashenfelter, O., & Johnson, G. E. 1972. Unionism, relative wages and labor quality in US manufacturing industries. International Economic Review, 13 (3): 488–508.CrossRefGoogle Scholar
  5. Balsvik, R. 2011. Is labor mobility a channel for spillovers from multinationals? Evidence from Norwegian manufacturing. Review of Economics and Statistics, 93 (1): 285–297.CrossRefGoogle Scholar
  6. Braun, S. 2008. Should trade unions welcome foreign investors? Evidence from Danish matched employer–employee data. Discussion Paper No. 7, Centre for Economic and Business Research (CEBR).Google Scholar
  7. Braun, S., & Scheffel, J. 2007. Does international outsourcing depress union wages? Working Paper No. 2007-033, SFB TR-649.Google Scholar
  8. Buckley, P. J., & Ghauri, P. N. 2004. Globalization, economic geography and the strategy of multinational enterprises. Journal of International Business Studies, 35 (2): 81–98.CrossRefGoogle Scholar
  9. Buckley, P. J., Clegg, J., & Wang, C. 2007. Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China. Journal of International Business Studies, 38 (3): 447–459.CrossRefGoogle Scholar
  10. Cantwell, J. 1993. Technological competence and evolving patterns of international production. In H. Cox, J. Clegg, & G. Ietto-Giles (Eds), The growth of global business: 19–37. London: Routledge.Google Scholar
  11. Cantwell, J. 1995. The globalisation of technology: What remains of the product life cycle model. Cambridge Journal of Economics, 19 (1): 155–174.Google Scholar
  12. Cantwell, J., & Mudambi, R. 2005. MNE competence-creating subsidiary mandates. Strategic Management Journal, 26 (12): 1109–1128.CrossRefGoogle Scholar
  13. Cantwell, J., & Mudambi, R. 2011. Physical attraction and the geography of knowledge sourcing in multinational enterprises. Global Strategy Journal, 1 (3–4): 206–232.CrossRefGoogle Scholar
  14. Caves, R. E. 1996. Multinational enterprise and economic analysis. Cambridge: Cambridge University Press.Google Scholar
  15. Choi, M. 2001. Threat effect of foreign direct investment on labor union wage premium. Working Paper No. 27, Political Economy Research Institute (PERI).Google Scholar
  16. Conyon, M. J., Girma, S., Thompson, S., & Wright, P. W. 2002. The productivity and wage effects of foreign acquisition in the United Kingdom. The Journal of Industrial Economics, 50 (1): 85–102.CrossRefGoogle Scholar
  17. Desai, M. A., Foley, C. F., & Hines, J. R. 2009. Domestic effects of the foreign activities of US multinationals. American Economic Journal: Economic Policy, 1 (1): 181–203.Google Scholar
  18. Dickens, W. T., & Katz, L. F. 1987. Inter-industry wage differences and industry characteristics. In K. Lang, & J.S. Leonard (Eds), Unemployment and the structure of labor markets: 48–89. New York: Basil Blackwell Inc.Google Scholar
  19. Driffield, N. 1996. Global competition and the labour market. Reading, MA: Harwood.Google Scholar
  20. Dunning, J. H. 1981. International production and the multinational enterprise. London, UK: George Allen and Unwin.Google Scholar
  21. Eckel, C., & Egger, H. 2009. Wage bargaining and multinational firms. Journal of International Economics, 77 (2): 206–214.CrossRefGoogle Scholar
  22. Eden, L., & Lenway, S. 2001. Introduction to the symposium multinationals: The Janus face of globalization. Journal of International Business Studies, 32 (3): 383–400.CrossRefGoogle Scholar
  23. Fabbri, F., Haskel, J. E., & Slaughter, M. J. 2003. Does nationality of ownership matter for labor demands? Journal of the European Economic Association, 1 (2–3): 698–707.CrossRefGoogle Scholar
  24. Feinberg, S. E., & Majumdar, S. K. 2001. Technology spillovers from foreign direct investment in the Indian pharmaceutical industry. Journal of International Business Studies, 32 (3): 421–437.CrossRefGoogle Scholar
  25. Figlio, D. N., & Blonigen, B. A. 2000. The effects of foreign direct investment on local communities. Journal of Urban Economics, 48 (2): 338–363.CrossRefGoogle Scholar
  26. Fosfuri, A., & Motta, M. 1999. Multinationals without advantages. Scandinavian Journal of Economics, 101 (4): 617–630.CrossRefGoogle Scholar
  27. Fosfuri, A., Motta, M., & Rønde, T. 2001. Foreign direct investment and spillovers through workers’ mobility. Journal of International Economics, 53 (1): 205–222.CrossRefGoogle Scholar
  28. Gaston, N., & Nelson, D. 2002. Integration, foreign direct investment and labour markets: Microeconomic perspectives. The Manchester School, 70 (3): 420–459.CrossRefGoogle Scholar
  29. Girma, S., Greenaway, D., & Wakelin, K. 2001. Who benefits from foreign direct investment in the UK? Scottish Journal of Political Economy, 48 (2): 119–131.CrossRefGoogle Scholar
  30. Glass, A. J., & Saggi, K. 2002. Multinational firms and technology transfer. Scandinavian Journal of Economics, 104 (4): 495–513.CrossRefGoogle Scholar
  31. Griffith, R., Harrison, R., & Van Reenen, J. 2006. How special is the special relationship? Using the impact of US R&D spillovers on UK firms as a test of technology sourcing. The American Economic Review, 96 (5): 1859–1875.CrossRefGoogle Scholar
  32. Grünfeld, L. 2006. Multinational production, absorptive capacity, and endogenous R&D spillovers. Review of International Economics, 14 (5): 922–940.CrossRefGoogle Scholar
  33. Görg, A. J., & Greenaway, D. 2004. Much ado about nothing? Do domestic firms really benefit from foreign direct investment? The World Bank Research Observer, 19 (2): 171–197.CrossRefGoogle Scholar
  34. Görg, A. J., & Strobl, E. 2005. Spillovers from foreign firms through worker mobility: An empirical investigation. Scandinavian Journal of Economics, 107 (4): 693–709.CrossRefGoogle Scholar
  35. Harrison, A., & McMillan, M. 2011. Offshoring jobs? Multinationals and US manufacturing employment. The Review of Economics and Statistics, 93 (3): 857–875.CrossRefGoogle Scholar
  36. Haskel, J. E., Pereira, S. C., & Slaughter, M. J. 2007. Does inward foreign direct investment boost the productivity of domestic firms? The Review of Economics and Statistics, 89 (3): 482–496.CrossRefGoogle Scholar
  37. Hirsch, B. T., & Macpherson, D. A. 2003. Union membership and coverage database from the current population survey: Note. Industrial and Labor Relations Review, 22 (4): 481–502.Google Scholar
  38. Klier, T., Ma, P., & McMillan, D. P. 2004. Comparing location decisions of domestic and foreign auto supplier plants. Working Paper No. 2004-27, Federal Reserve Bank of Chicago.Google Scholar
  39. Kogut, B., & Chang, S. J. 1991. Technological capabilities and Japanese foreign direct investment in the United States. Review of Economics and Statistics, 73 (3): 401–413.CrossRefGoogle Scholar
  40. Lawrence, C., & Lawrence, R. Z. 1985. Manufacturing wage dispersion: An end game interpretation. Brookings Papers on Economic Activity, 1985 (1): 47–116.CrossRefGoogle Scholar
  41. Lin, P., & Saggi, K. 2007. Multinational firms, exclusivity, and backward linkages. Journal of International Economics, 71 (1): 206–220.CrossRefGoogle Scholar
  42. Liu, X., Siler, P., Wang, C., & Wei, Y. 2000. Productivity spillovers from foreign direct investment: Evidence from UK industry level panel data. Journal of International Business Studies, 31 (3): 407–425.CrossRefGoogle Scholar
  43. Lommerud, K. E., Meland, F., & Sørgard, L. 2003. Unionised oligopoly, trade liberalisation and location choice. Economic Journal, 113 (490): 782–800.CrossRefGoogle Scholar
  44. Lommerud, K. E., Straume, O. R., & Sørgard, L. 2005. Downstream merger with upstream market power. European Economic Review, 49 (3): 717–743.CrossRefGoogle Scholar
  45. Lommerud, K. E., Straume, O. R., & Sørgard, L. 2006. National versus international mergers in unionized oligopoly. RAND Journal of Economics, 37 (1): 212–233.CrossRefGoogle Scholar
  46. Makaev, T. 2010. The dynamics of international mergers and acquisitions. University of Maryland (mimeo).Google Scholar
  47. Markusen, J. R., & Trofimenko, N. 2009. Teaching locals new tricks: Foreign experts as a channel of knowledge transfer. Journal of Development Economics, 88 (1): 120–131.CrossRefGoogle Scholar
  48. Martins, P. S. 2005. Inter-Firm employee mobility, displacement, and foreign direct investment spillovers. Queen Mary: University of London (mimeo).Google Scholar
  49. McCann, P., & Mudambi, R. 2004. The location behavior of the multinational enterprise: Some analytical issues. Growth and Change, 35 (4): 491–524.CrossRefGoogle Scholar
  50. McCann, P., & Mudambi, R. 2005. Analytical differences in the economics of geography: The case of the multinational firm. Environment and Planning A, 37 (10): 1857–1876.CrossRefGoogle Scholar
  51. Mezetti, C., & Dinopoulos, E. 1991. Domestic unionization and import competition. Journal of International Economics, 31 (1–2): 79–100.CrossRefGoogle Scholar
  52. Muendler, M.-A., & Becker, S. O. 2010. Margins of multinational labor substitution. American Economic Review, 100 (5): 1999–2030.CrossRefGoogle Scholar
  53. Pagel, B., & Wey, C. 2013. How to counter union power? Equilibrium mergers in international oligopoly. Discussion Paper No. 89, DICE.Google Scholar
  54. Poole, J. P. 2013. Knowledge transfers from multinational to domestic firms: Evidence from worker mobility. The Review of Economics and Statistics, 95 (2): 393–406.CrossRefGoogle Scholar
  55. Shimizu, K., Hitt, M. A., Vaidyanath, D., & Pisano, V. 2004. Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future. Journal of International Management, 10 (3): 307–353.CrossRefGoogle Scholar
  56. Smarzynska-Javorcik, B. 2004. Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review, 94 (3): 605–627.CrossRefGoogle Scholar
  57. Wang, J. Y., & Blomström, M. 1992. Foreign investment and technology transfer: A simple model. European Economic Review, 36 (1): 137–155.CrossRefGoogle Scholar
  58. Wei, Y., & Liu, X. 2006. Productivity spillovers from R&D, exports and FDI in China’s manufacturing sector. Journal of International Business Studies, 37 (4): 544–557.CrossRefGoogle Scholar
  59. Wei, Y., Liu, X., & Wang, C. 2008. Mutual productivity spillovers between foreign and local firms in China. Cambridge Journal of Economics, 32 (4): 609–631.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2014

Authors and Affiliations

  • Joseph A Clougherty
    • 1
    • 2
  • Klaus Gugler
    • 3
  • Lars Sørgard
    • 4
  • Florian W Szücs
    • 5
  1. 1.University of Illinois at Urbana-ChampaignChampaignUSA
  2. 2.CEPRLondonUK
  3. 3.WU Vienna University of Economics and BusinessViennaAustria
  4. 4.Norwegian School of EconomicsBergenNorway
  5. 5.DIWBerlinGermany

Personalised recommendations