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WHY FOREIGN OWNERSHIP MAY BE GOOD FOR YOU

Authors

  • Hartmut Egger,

    1. University of Bayreuth and CESifo, Germany, GEP, U.K., and IfW, Germany; University of Tübingen and CESifo, Germany, and GEP, U.K.
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  • Udo Kreickemeier

    1. University of Bayreuth and CESifo, Germany, GEP, U.K., and IfW, Germany; University of Tübingen and CESifo, Germany, and GEP, U.K.
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    • We are grateful to three anonymous referees for helpful comments. We would like to thank Kunal Dasgupta, Donald Davis, Switgard Feuerstein, Holger Görg, Wilhelm Kohler, Margitte Müller, Peter Neary, and participants at the Princeton IES Summer Workshop, the Excellence Award Workshop in Kiel, the Aachen Workshop on International Production, the CESifo conference on Global Economy, the Göttingen Workshop on International Economics, the Annual Meeting by the International Economics Committee of the German Economic Association, the Annual Conference of the German Economic Association, the ETSG Annual Conference, the Midwest International Trade Meeting, as well as seminar participants at the Universities of Aachen, Bergen, Dortmund, Gießen, Kiel, Regensburg, and Trier for helpful comments and suggestions. We also thank Harsh Mehta and Frank Pisch for excellent research assistance. Please address correspondence to: Hartmut Egger, Department of Law and Economics, University of Bayreuth, Universitätsstr. 30, 95447 Bayreuth, Germany. E-mail: hartmut.egger@uni-bayreuth.de.


  • Manuscript received September 2011; revised April 2012.

Abstract

We develop a two-country model with heterogeneous producers and rent-sharing at the firm level. We identify two sources of a multinational wage premium: A composition effect because multinational firms are more productive, make higher profits, and pay higher wages, and a firm-level wage effect, because a firm makes higher global profits and thus pays higher wages in its home market when becoming multinational. With two identical countries, the wage premium is fully explained by firm characteristics. Allowing for technology differences between countries, a residual wage premium exists in the technologically backward country but not in the advanced country.

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