CIGS/EHESS 日仏財団 International Symposium Towards a New Global Economic Order: Implications for Firms, Workers, and Governments (Tokyo, Japan; July 15, 2014) Globalization and Domestic Operations: Applying the JC/JD Method to the Japanese Manufacturing Firms (co-authored by Mitsuyo Ando) Fukunari Kimura Professor, Faculty of Economics, Keio University Chief Economist, Economic Research Institute for ASEAN and East Asia (ERIA) 1
1. Domestic job loss? Skill shift? Globalization of corporate activities and domestic employment/operations in developed countries A crucial question for both academics and policy makers, particularly in the era of the 2 nd unbundling Most micro/panel data studies conclude that FDI does not necessarily cause job destruction at home or rather sometimes has positive effects on domestic employment. However, these works do not seem to be convincing enough for the general public. 2
The 2 nd Unbundling The 2 nd unbundling, i.e., international division of labor in terms of production processes and tasks, has developed since the 1980s, based on drastic reduction in coordination costs due to ICT revolution. The 2 nd unbundling in the manufacturing sector is most advanced in East Asia. 1 st 2 nd Bay A Bay B Bay A Bay B ICT Bay C Bay C Source: Baldwin (2011). 3
The 1 st and the 2 nd unbundling Bay A Bay B Bay A Bay B Bay C Bay C Bay A Bay C Connecting factory & doing business abroad: The trade-investment-services nexus 1) Two-way flows of goods, ideas, technology, capital, and technicians. 2) Investment and application of technical, managerial and market know-how abroad. Bay B Source: The original is in Baldwin (2011), slightly modified by the author. 4
The fragmentation theory: Production blocks and service links Tradeoff between the reduction in production costs in PB and the enhancement of SL costs. Fragmentation of production occurs particularly between countries at different development stages. Before fragmentation After fragmentation SL Large integrated factory SL PB PB SL PB PB SL PB SL PB: production blocks SL: service links 5
Two lines of recent literature with micro data (1) Detect causality from FDI to domestic employment E.g., Wagner (2011) for Germany, Hijzen, Jean, and Mayer (2011) for France; Hijzen, Inui, Todo (2007), Edamura, Hering, Inui, and Poncet (2011), Hayakawa, Matsuura, Motohashi, and Obashi (2013), and Tanaka (2012) for Japan Focus only on firms with the first FDI in a certain period (sometimes by destination for vertical and horizontal FDI), throwing away a large number of existing MNEs with multiple foreign affiliates. Applying a matching technique for the comparison with local firms, reducing samples further. Good to detect causality, but overall picture is given up. (2) Estimate a labor demand function to quantify the effects of foreign operations on domestic employment E.g., Harrison and McMillan (2011); Yamashita and Fukao (2010), Kambayashi and Kiyota (2013) for Japan Often picks up MNEs only, no comparison with non-mnes. To supplement the literature, it is worth conducting an overall data survey to provide a bird s eye view. 6
Apply the job creation (JC)/job destruction (JD) method for the Japanese manufacturing firms Powerful tool developed in the labor literature for taking care of the highly heterogeneous characteristics of individual firms and bridges between micro and macro Good at comparing subsets of establishments/firms Sectors/subsectors, regions, establishment/firm size, and others 7
2. The Kikatsu data: its strength and limitation The Basic Survey of Business Structure and Activity (Kikatsu) Strengths Census coverage Intra-firm information including dom./for. establishments/affiliates, workers for HQ/manu. activities, exps./imps (not by dest.), and others. Conducted every year after 1994. Limitation Coverage Firms with more than 50 workers, capital of more than 30 million yen (size truncation) Firms with establishments in mining, manufacturing, wholesale/retail trade, and restaurants. No specialized survey to confirm exits ; no information that specifies M&A; the percentage of questionnaire returns is not 100%.=>difficulty in entry/exit exercise 8
3. Basic statistics 9
10
11
4. The decomposition of changes in domestic operations and trade 4.1 The JC/JD method 12
4.2 General trends of domestic employment of Japanese manufacturing firms The full decomposition (including entry/exit) Findings Gross changes are huge even at the subsectoral level. Net growth widely changes over time due to internal and external economic conditions. Job destruction, large in 1998-2002 but not in 2008-2010. Possible over-statements of entry/exit SMEs vs. large firms 13
14
15
4.3 Changes in domestic operations and trade by expanding MNEs: comparison with non-expanding MNEs and locals The panel decomposition (w/o entry/exit) 1998-2002, 2002-2006, 2006-2008, 2008-2010 Manufacturing subsectors Small (dom.emp.<300) vs. large FDI status MNE1: multinationals that increase the # of foreign affiliates MNE2: other multinationals Local: firms that do not have a foreign affiliate. 16
17
18
5. The Kolmogorow-Smirnov test for changes in domestic operations and trade by expanding MNEs: comparison with non-expanding MNEs and locals Kernel density estimates for net change rates of domestic employment/operations by the type of firms (the panel decomposition) The Kolmogorov-Smirnov (K-S) test to compare groups of firms In terms of the percentage change, unweighted by employment size (cf. Section 4) 19
20
The Kolmogorov-Smirnov (K-S) test 21
22
23
6. Conclusion This paper provides an overall picture of the globalization of firms and domestic emp./operations. Key findings (i) Gross changes in dom. emp./operations >> net changes, showing restructuring dynamism and firm heterogeneity, (ii) The shrinkage of manu. sector is not salient except 1998-2002 though a slight declining trend in manufacturing activities recently, (iii) MNE1-SMEs tend to enlarge dom. emp./operations, compared with MNE2-SMEs or Local-SMEs, (iv) MNE1 are likely to intensify HQ activities within production networks, and (v) MNE1-SMEs tend to expand exp./imp. more than MNE2-SMEs or Local-SMEs, suggesting that they extend active operations in international production networks particularly in East Asia. 24
Reservation Job/operation adjustment after March 2011. Small manufacturing firm with less than 50 emp. Services sector At least we can say that de-industrialization can be slowed down if proper international division of labor is established in production networks. Implication: importance of enhancing location advantages in developed countries 25
References Baldwin, Richard. (2011) 21 st Century Regionalism: Filling the Gap between 21 st Century Trade and 20 th Century Trade Rules. Centre for Economic Policy Research Policy Insight No. 56 (May) (http://www.cepr.org). Edamura, Kazuma; Hering, Laura; Inui, Tomohiko; and Poncet, Sandra. (2011) The Overseas Subsidiary Activities and Their Impact on the Performance of Japanese Parent Firms. RIETI Discussion Paper Series 11-E-069. Harrison, A. and McMillan, M.S. (2011) Outsourcing Jobs? Multinationals and US Manufacturing Employment. The Review of Economics and Statistics, 93(3): 857-875. Hayakawa, Kazunobu; Matsuura, Toshiyuki; Motohashi, Kazuyuki; and Obashi, Ayako. (2013) Twodimensional Analysis of the Impact of Outward FDI on Performance at Home: Evidence from Japanese Manufacturing Firms. Japan and the World Economy, 27: 25-33. Hijzen, Alexander; Inui, Tomohiko; and Todo, Yasuyuki. (2007) The Effects of Multinational Production on Domestic Performance: Evidence from Japanese Firms. RIETI Discussion Paper Series 07-E-006. Hijzen, Alexander; Jean, Sébastien; and Mayer, Thierry. (2011) The Effects at Home of Initiating Production Abroad: Evidence from Matched French Firms. Review of World Economics, 147: 457-483. Kambayashi, Ryo and Kiyota, Kozo. (2013) Disemployment by Foreign Direct Investment? Multinationals and Japanese Employment. Mimeo. Tanaka, Ayumu. (2012) The Effects of FDI on Domestic Employment and Workforce Composition. RIETI Discussion Paper Series 12-E-069 (http://www.rieti.go.jp/en/publications/summary/12100012.html). Wagner, Joachim. (2011) Offshoring and Firm Performance: Self-selection, Effects on Performance, or Both? Review of World Economics, 147: 217-247. Yamashita, Nobuaki and Fukao, Kyoji. (2010) Expansion Abroad and Jobs at Home: Evidence from Japanese Multinational Enterprises. Japan and the World Economy, 22: 88-97. 26