NCPA - National Center for Policy Analysis

The Mobility of Multinationals

April 8, 2004

Anti-globalizers claim multinational companies rob Americans of jobs by switching production overseas, moving from one country to the next under the lure of subsidies and profit. Yet research suggests multinationals aren't quite so fickle, tending to stick around longer than local firms.

According to the Economist, multinational corporations tend to have greater average productivity, be more capital intensive, and have access to cheaper finance than purely local employers. Also, exporters are less likely to close down than are factories that produce only for the domestic market, thus playing to the strength of multinationals to fend off competition from low-wage countries. In other words, multinational plants are generally more enduring because they are bigger and more efficient on average:

  • Around 27 percent of all plants with more than ten employees are shut down during any five-year period.
  • Between 1987 and 1997 American factories owned by multinationals were less likely to close down than local firms.
  • In Indonesia, over a 15-year period, closure rates for foreign-owned factories were 10 percentage points lower than for locally owned ones.
  • When comparing firms of the same size and efficiency, however, the probability of closure is 20 percentage points higher for multinationals than for local firms.

The Economist says this drawback is more than offset by the benefits delivered by multinationals: people are often paid more than they could earn at similar local plants, workplace conditions in poor countries tend to be better than local firms, and technology and access to foreign markets are transferred to their host countries.

Source: "Are Global Companies Too Mobile for Workers' Good?" Economist, March 27, 2004.

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