Disemployment Caused by Foreign Direct Investment? Multinationals and Japanese employment

Using parent-foreign affiliate matched data on Japan from 1995 to 2009, this paper examines the effects of foreign direct investment (FDI) on domestic employment, especially in manufacturing. One of the contributions of this paper is that we utilize the matched data for each country in which Japanese multinational firms operate, which enables us to identify the differences in the impact of FDI between destinations. Results indicate that the increases in the investment goods price in China—but the decreases in it in the United States—negatively affected the domestic labor demand of multinationals in Japan. This contrast may reflect a difference in specialization patterns across countries. We also found that disemployment in Japan was driven mainly by substitution between capital and labor, rather than by the reallocation of labor from Japan to overseas.