Re: [PEN-L:1573] Re: BLS Daily report

[Anthony D'Costa]

There is plenty of arguments and evidence as why FDI in LDCs do not
displace jobs in the home countries in the same magnitude as popular
perceptions might warrant.  The reason is different segments of the
production process or different types of production are normally farmed
out.  In other words skill intensities vary.  However, this does not mean
that home countries do not suffer from job losses in those sectors.  The
losses result from technological change.  Un- semi-skilled work tends to
get technologically substituted in the home country because of high wage
costs.  Low wage imports add to that burden.  On the average, skill
intensity of imports from LDcs tend to be much lower than competing
industries in the home country.  Most importantly, on the average, FDI is
not determined by low wages.  If that were the case, we would not have
about 70% of global FDI taking place within the triad (US, WEur, Japan).

Anthony P. D'Costa
Associate Professor
Comparative International Development
University of Washington
1900 Commerce Street
Tacoma, WA 98402, USA

Phone: (253) 692-4462
Fax :  (253) 692-5612

On Tue, 15 Dec 1998, Tom Kruse wrote:

> We read:
> 
> >BLS DAILY REPORT, MONDAY, DECEMBER 14, 1998
> 
> [snip]
> 
> >Outflows of foreign direct investment from rich to poor countries are having
> >only a limited negative impact on employment in source economies, according
> >to the Bank for International Settlements. ...  "Fears that jobs are being
> >destroyed in the industrialized countries when multinational enterprises
> >invest in low-wage countries are only in part supported by the evidence,"
> >according to a working paper prepared by the bank. ...  The authors point
> >out that because of the low degree of substitution between employees in
> >parent companies and their affiliates abroad, even where there may be some
> >displacement of home-country workers due to Foreign Direct Investment, "such
> >effects are likely to have been only moderate" ...  (Daily Labor Report,
> >page A-9).
> 
> Comments anyone? This would seem to really challenge the "exporting
> manufacturing and other good jobs" thesis of globalization.  I suppose we'd
> first need to know what "only in part" means.  And what exaclty does
> substitution mean?  That the overseas worker directly substitutes the US
> worker?  What if in the transfer of the production process innovation
> occurs, eliminating a one-to-one correpsondence between jobs before in the
> US and jobs after overseas?  Any insights?
> 
> Tom
> 
> Tom Kruse
> Casilla 5812 / Cochabamba, Bolivia
> Tel/Fax: (591-4) 248242
> Email: [EMAIL PROTECTED]
> 
> 

Re: [PEN-L:1573] Re: BLS Daily report

[Peter Dorman]

There's a huge literature on this topic, which I don't have time to get
into right now.  (I summarized and critiqued the first wave of it in a
report I wrote to the Labor Dept. back in 1995.)  All I will say right
now is that the question has generally been ill-posed.  (1) It looks for
absolute job loss, when the correct measure, in labor market terms, is
the impact of marginal decreases in demand on wages.  See also Dani
Rodrik on this.  (2) It misses entirely the political-economic
mechanism, through which pressures on firms' investment decisions and
countries' current accounts are translated into business-friendly
economic policies.  Rodrik sort of gets this.  (3) On a technical level,
every study I've seen makes neoclassical assumptions concerning the
effects of international trade, market clearing, marginal productivity
pricing, etc. that effectively beg the question.

I've already gone on too long.  Student papers to read.

Peter Dorman

[PEN-L:1573] Re: BLS Daily report

[Tom Kruse]

We read:

>BLS DAILY REPORT, MONDAY, DECEMBER 14, 1998

[snip]

>Outflows of foreign direct investment from rich to poor countries are having
>only a limited negative impact on employment in source economies, according
>to the Bank for International Settlements. ...  "Fears that jobs are being
>destroyed in the industrialized countries when multinational enterprises
>invest in low-wage countries are only in part supported by the evidence,"
>according to a working paper prepared by the bank. ...  The authors point
>out that because of the low degree of substitution between employees in
>parent companies and their affiliates abroad, even where there may be some
>displacement of home-country workers due to Foreign Direct Investment, "such
>effects are likely to have been only moderate" ...  (Daily Labor Report,
>page A-9).

Comments anyone? This would seem to really challenge the "exporting
manufacturing and other good jobs" thesis of globalization.  I suppose we'd
first need to know what "only in part" means.  And what exaclty does
substitution mean?  That the overseas worker directly substitutes the US
worker?  What if in the transfer of the production process innovation
occurs, eliminating a one-to-one correpsondence between jobs before in the
US and jobs after overseas?  Any insights?

Tom

Tom Kruse
Casilla 5812 / Cochabamba, Bolivia
Tel/Fax: (591-4) 248242
Email: [EMAIL PROTECTED]