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Multinationals, Monopsony, and Local Development: Evidence from the United Fruit Company

Author

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  • Esteban Méndez-Chacón
  • Diana Van Patten

Abstract

This paper studies the short- and long-run effects of large firms on economic development. We use evidence from one of the largest multinationals of the 20th century: the United Fruit Company (UFCo). The firm was given a large land concession in Costa Rica—one of the so-called "Banana Republics"—from 1899 to 1984. Using administrative census data with census-block geo-references from 1973 to 2011, we implement a geographic regression discontinuity design that exploits a quasi-random assignment of land. We find that the firm had a positive and persistent effect on living standards. Company documents explain that a key concern at the time was to attract and maintain a sizable workforce, which induced the firm to invest heavily in local amenities that can account for our result. Consistent with this mechanism, we show, empirically and through a proposed model, that the firm's welfare effect is increasing in worker mobility.

Suggested Citation

  • Esteban Méndez-Chacón & Diana Van Patten, 2021. "Multinationals, Monopsony, and Local Development: Evidence from the United Fruit Company," Opportunity and Inclusive Growth Institute Working Papers 46, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmoi:90267
    DOI: 10.21034/iwp.46
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    References listed on IDEAS

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    Cited by:

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    2. Francesco Amodio & Nicolás de Roux, 2021. "Labor Market Power in Developing Countries: Evidence from Colombian Plants," Documentos CEDE 19267, Universidad de los Andes, Facultad de Economía, CEDE.
    3. Alonso Alfaro-Urena & Benjamin Faber & Cecile Gaubert & Isabela Manelici & Jose P. Vasquez, 2022. "Responsible Sourcing? Theory and Evidence from Costa Rica," CESifo Working Paper Series 10108, CESifo.
    4. Ali, Daniel Ayalew & Deininger, Klaus, 2021. "Does title increase large farm productivity? Institutional determinants of large land-based investments' performance in Zambia," 2021 Conference, August 17-31, 2021, Virtual 315328, International Association of Agricultural Economists.
    5. Oriana Bandiera & Ahmed Elsayed & Andrea Smurra & Céline Zipfel, 2022. "Young Adults and Labor Markets in Africa," Journal of Economic Perspectives, American Economic Association, vol. 36(1), pages 81-100, Winter.
    6. Vrolijk, Kasper, 2023. "How does globalisation affect social cohesion?," IDOS Discussion Papers 5/2023, German Institute of Development and Sustainability (IDOS).

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    More about this item

    Keywords

    Long-run development; Monopsony power; Foreign firms;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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