The Impact of Multinationals’ Overseas Expansion on Employment at Suppliers at Home: New Evidence from Firm-Level Transaction Relationship Data for Japan

This paper focuses on non-internationalized supplier firms and investigates how the expansion of overseas activities by their main customer firms affects their employment, utilizing a unique dataset that includes information on buyer-supplier transaction relationships for Japanese manufacturing firms for the period 1998-2007. We do not find any negative effect of top buyers' overseas expansion on domestic suppliers' employment. Instead, we find a significant positive effect. Our result implies that, contrary to fears of a potential hollowing out of domestic supporting industries, the expansion of overseas activities of customer firms has a positive impact on suppliers' employment. Expansion of overseas production by downstream firms may increase purchases from upstream firms in Japan and this would be the case if downstream firms can increase their worldwide sales by expanding overseas production. Therefore, our result suggests that having a transaction relationship with successful downstream multinational firms that expand their global sales through overseas production is important for non-internationalized suppliers in Japan.