Working Paper No. 08-09

The Impact of Foreign Production Activities: Firm-Level Evidence from Taiwan’s Multinationals

Henry Y.-H. Chen

October 2008

ABSTRACT

A prominent phenomenon characterizing the increasing level of globalization is that many firms move some or all of their production activities abroad for different reasons. One of the main concerns is that the domestic industries will be hollowed out, and only the most skilled labor will survive. On the other hand, some people argue that firms’ foreign production activities may be a complement to domestic production and even raise the domestic employment level. Must foreign production activities result in job-exportation? Using firm-level data from Taiwan, this paper finds that while increasing the proportion of foreign output has a negative impact on both the domestic manufacturing and R&D workers, most of the negative impact on R&D workers is nullified when the foreign production activities are carried out in developing countries. Nevertheless, this is not the case for manufacturing workers. Since over three quarter of the Taiwanese multinationals engage in foreign production activities in developing countries, the empirical results suggest that there exists a geographical fragmentation of R&D and manufacturing activities.

DOWNLOAD PAPER