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International Rent Sharing and Domestic Labour Markets: A Macroeconomic Analysis

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  • W. Jos Jansen
  • Ad C. J. Stokman

Abstract

Foreign-owned firms account for a significant part of output in many industrialized countries. However, compared to international trade linkages, relatively little is known about the role of foreign direct investment linkages and multinational firm behavior in the transmission of disturbances from one country to the next. Inspired by the micro- evidence on profit sharing within multinational corporations and within industries, we investigate whether a cross-border rent sharing phenomenom can be identified at the macro-level. The rent sharing hypothesis implies that an increase in foreign profitability should boost wages and/or employment in the domestic economy. Our empirical study provides evidence that international rent sharing might be an important aspect of global economic linkages. In four continental European countries and the UK, labour market conditions (wages and/or employment) are significantly affected by profitability conditions abroad. By contrast, the US labour market does not appear to be sensitive to changes in profitability in other countries, which could be explained by the still relatively modest role of foreign-owned capital in the US economy.
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  • W. Jos Jansen & Ad C. J. Stokman, 2006. "International Rent Sharing and Domestic Labour Markets: A Macroeconomic Analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(4), pages 792-813, December.
    • Handle: RePEc:spr:weltar:v:142:y:2006:i:4:p:792-813
    DOI: 10.1007/s10290-006-0093-5
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    Cited by:

    1. W. Jos Jansen & Ad C. J. Stokman, 2014. "International business cycle co-movement: the role of FDI," Applied Economics, Taylor & Francis Journals, vol. 46(4), pages 383-393, February.
    2. Jörn Kleinert & Julien Martin & Farid Toubal, 2015. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 134-159, October.
    3. Claudia Busl & Marcus Kappler, 2013. "Does Foreign Direct Investment Synchronise Business Cycles? Results from a Panel Approach. WWWforEurope Working Paper No. 23," WIFO Studies, WIFO, number 46884, April.
    4. Jos Jansen & Ad Stokman, 2011. "International Business Cycle Comovement: Trade and Foreign Direct Investment," DNB Working Papers 319, Netherlands Central Bank, Research Department.
    5. Fries, Claudia & Kappler, Marcus, 2015. "Does foreign direct investment synchronise business cycles? Results from a panel approach," ZEW Discussion Papers 15-031, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    Foreign direct investment; international rent sharing; labour markets; economic integration;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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