It matters where you go

a r t i c l e i n f o How does outward foreign direct investment (FDI) affect employment growth of the multinational corporations (MNCs) in the home country? Does the impact of outward investment differ by the level of development of the destination country of the FDI? Using a difference-indifference approach, we assess the impact of starting to invest in less-advanced countries compared with investing in more-advanced countries. To obtain suitable control groups in each case, we use the propensity score method to select national firms that ex post did not take the investment decisions that we study even though ex ante they would have been equally likely to. We find that moving to less-advanced countries decreases a company's employment growth rate especially in the short run. On the other hand, moving to more-advanced countries does not consistently affect employment growth in any significant way. Including investment decisions of established multinationals in the estimation somewhat weakens but does not overturn this conclusion. Multinationals have played an important role in the recent wave of globalization with its worldwide increase in exports and foreign direct investment (FDI). The public often views multinational activities with some skepticism, as it is concerned that off-shoring activities will reduce domestic employment in the firms that venture abroad. Such concerns are heard not only in the U.S. and Europe, but also in Asia. In this paper, we study the link between a multinational corporation's (MNC) employment growth rate at home and its decision to invest in either more-or less-advanced countries. With a unique dataset of South Korean firms that links the South Korean parent of an MNC with its affiliates abroad at the firm level, we can explicitly differentiate the impact of foreign direct investment by destination. Using matched sampling techniques to address self-selection and endogeneity, we compare the employment trajectories of multinationals with affiliates in either more-or less-advanced economies with the employment growth of firms that do not expand through foreign direct investment but that otherwise share all other forms of access to foreign markets. Since the mid-1980s, increasingly larger flows of foreign direct investment have found their way into China. China now tops the list of FDI recipients worldwide. China is also the predominant destination of FDI in East Asia, where the FDI flows into China and their effects on domestic production have become one of the premier policy concerns. The South Korean …