Disemployment caused by Foreign Direct Investment? Multinationals and Japanese employment

A major concern with multinationals is that they can cause disemployment (also called job offshoring). However, FDI could offset or even exceed such a negative effect. This column examines to what extent disemployment in Japan is related to FDI. The results suggest that disemployment in Japan is driven by substitution between capital and labour, rather than the reallocation of labour caused by FDI.

With the growing activities of multinationals, one of the major concerns for policymakers in developed countries is the disemployment caused by multinationals, especially in the manufacturing sector (Note 1). For example, increased competition with foreign countries forces firms to relocate their production sites overseas, which results in disemployment in the home country. In particular, the decline in manufacturing jobs is believed to have been the consequence of globalisation. However, previous studies, including those conducted in Japan, have not necessarily confirmed this phenomenon of 'exporting jobs' (Note 2). One reason is that foreign direct investment (FDI) usually initiates increases in the production of final goods in foreign countries, which positively affects the production of intermediate inputs in the home country, resulting in the maintenance of, or an increase in, the demand for domestic labour. Such positive effects may offset or even exceed the negative effects.

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http://www.rieti.go.jp/en/columns/v01_0029.html

RIETI President Masahisa talks about his 50-year academic journey in the field of regional science.

http://www.rieti.go.jp/en/papers/contribution/fujita/06.html

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