IFS Working Paper (W07/07)

Investment abroad and adjustment at home: evidence from UK multinational firms

Date: 14 March 2007
ISSN: 1742-0415
JEL classification: F2
DOI: 10.1920/wp.ifs.2007.0707

I use within-firm, plant-level data combined with geographic information on firms' overseas operations to examine how investment in low-wage economies affects firms' home-country operations. To remain close to theory I focus on changes in firms' organisational and industrial structure driven by plant closures. As predicted by models of vertical multinationals I find that investment in relatively low-wage economies is associated with plant closures in relatively low-skill, labour-intensive industries in the UK. The findings are of interest in the context of the relaxation of barriers to inward investment in low-wage economies.