Abstract
This article offers a joint analysis of two phenomena characterising most advanced economies in recent decades: the rise of foreign ownership in manufacturing activities and the pervasiveness of the service economy. The analysis focuses on a specific intersectoral demand-side channel for structural change: the forward linkage established by foreign manufacturing multinational enterprises (MNEs) with service providers through outsourcing in the UK local labour markets. Descriptive evidence shows that service outsourcing by foreign manufacturing plants is notably larger than that of their domestic counterparts. On this basic premise, we estimate the local multiplier effect that foreign manufacturing activity has on service employment. To test our hypotheses, the methodology adopts an instrumental variable approach. Our findings suggest that foreign MNEs in manufacturing can act as a catalyst for regional structural change by stimulating employment in intermediate services via demand linkages. While the composition of this effect seems to be homogeneous in terms of the knowledge content of services, differences are found once the degree of their spatial concentration is accounted for.
Highlights
This article focuses on the relationship between two ubiquitous phenomena characterising most advanced economies in recent decades: the increased foreign ownership in manufacturing and the rise of the service economy
The growth of service employment exerts strong pressure towards the spatial polarisation of labour demand and job opportunities (Wood, 1991), feeding the steadily increasing North-South divide of the UK’s economy over recent decades (Gardiner et al, 2013). Filling this gap in the literature represents the objective of this article, which extends the examination of the effects of foreign investment in manufacturing on recipient economies to the analysis of intersectoral market-mediated relationships.We use plantlevel data in the UK for the period 1997–2007, taken from the Annual Census of Production Respondents Database (ARD)
Our results suggest that foreign multinational enterprises (MNEs) in manufacturing may act as a catalyst of regional structural change by stimulating the generation of jobs in the tertiary sector via demand linkages, directed towards intermediate services
Summary
This article focuses on the relationship between two ubiquitous phenomena characterising most advanced economies in recent decades: the increased foreign ownership in manufacturing and the rise of the service economy. The growth of service employment exerts strong pressure towards the spatial polarisation of labour demand and job opportunities (Wood, 1991), feeding the steadily increasing North-South divide of the UK’s economy over recent decades (Gardiner et al, 2013). Filling this gap in the literature represents the objective of this article, which extends the examination of the effects of foreign investment in manufacturing on recipient economies to the analysis of intersectoral market-mediated relationships.We use plantlevel data in the UK for the period 1997–2007, taken from the Annual Census of Production Respondents Database (ARD).
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
