The decision to invest in a low-wage country: Evidence from Italian textiles and clothing multinationals

Barba Navaretti, Anna M. Falzoni, Alessandro Turrini, Giorgio
Authors registered in the RePEc Author Service: Alessandro Turrini () and Giorgio Barba Navaretti ()

Journal of International Trade & Economic Development, 2001, vol. 10, issue 4, pages 451-470

Abstract: In this paper we investigate the firm-specific factors that account for the decision to invest in low-wage countries on the part of Italian firms in the textiles and clothing sector. This analysis is motivated by the fact that our survey data show, between 1990 and 1997, a decline of average employment in parent companies, while that in subsidiaries grew substantially. However, correlation and regression analysis show that employment in parent companies that invested in low-wage countries only seems to be negatively related with employment abroad. Our hypothesis is that investments in cheap labour countries are mainly cost-driven and are undertaken by firms that focus on a low-quality, low-cost strategy. We test this hypothesis through a probit analysis. The evidence suggests that investments to cheap labour countries are more likely to be of a vertical type, being relatively more labour-intensive compared with the parent company. Our hypothesis seems to be confirmed empirically. Investments in low-wage countries are more likely to generate abundant intra-firm trade and to be undertaken by firms with low shares of skilled employment.

Keywords: Foreign Direct Investment Production Relocation Product Differentiation (search for similar items in EconPapers)
Date: 2001
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