Do Multinationals Influence Labor Standards? A Close Look at US Outward FDI

This work in progress investigates the effects of multinational corporations on labor standards. We argue that the previous literature has failed to dis-tinguish the different motives that encourage firms to become multinational. Therefore, we build a labor market model where parts of the labor force are willing to accept reductions in their labor standards to attract job-creating horizontal foreign direct investment. By disentangling US FDI data for 35 host countries throughout the period 1997 to 2002 into vertically and hor-izontally motivated FDI, we show that this disaggregation provides much more significant results. Concretely, we find a statistically significant and economically considerable negative impact of horizontal US FDI on labor right practices in industrialized host countries by using a static OLS model as well as with dynamic GMM estimation. Our results do not imply that this effect leads to a decrease in welfare in the host economy but that in the welfare optimization process employment, income and job-quality may serve as substitutes