by Theodore H. Moran, Peterson Institute for International Economics
View full document [pdf]
The 2008 election rekindled debate about whether US multinationals shift technology across borders and relocate production in ways that might harm workers and communities at home. President Obama now pledges to end tax breaks for corporations that ship jobs overseas.
The preoccupation about the behavior of American multinationals takes three forms: (1) that US-based multinational corporations may follow a strategy that leads them to abandon the home economy, leaving the workers and communities to cope on their own with few appealing alternatives after the multinationals have left; (2) worse, that US-based multinational corporations may not just abandon home sites but drain off capital, substitute production abroad for exports, and "hollow out" the domestic economy in a zero-sum process that damages those left behind; and (3) worst, that US-based multinational corporations may deploy a rent-gathering apparatus that switches from sharing supranormal profits and externalities with US workers and communities to extracting rents from the United States. Each contains a hypothetical outcome that can be compared with contemporary evidence from the United States and other home countries.
This working paper shows that multinational corporations do not locate their operations in a zero-sum manner that favors host economies at the expense of the home economy. The two-way flow of inward and outward investment does not create an outcome that can be reasonably characterized in any way as "hollowing out" the home economy. The evidence consistently shows that the expansion of MNC operations abroad and the strengthening of MNC operations in the home country are complementary, and the answer to the counterfactual—would the home country be better off, or would workers in the home country be better off, if home-country MNCs were prevented from engaging in outward investment?—is indisputably negative.
Making it more difficult to engage in outward investment would not strengthen the home economy in the United States. Quite the contrary, placing obstacles in the way of US multinationals using the United States as the center for conducting their global operations would leave them, their suppliers, their workers, and the communities where they are located worse off and less competitive in the world economy.
Book: Understanding the Trans-Pacific Partnership January 2013
Policy Brief 12-21: How Can Trade Policy Help America Compete? October 2012
Policy Brief 11-20: The United States Should Establish Permanent Normal Trade Relations with Russia November 2011
Policy Brief 11-8: What Should the United States Do about Doha? June 2011
Book: The Long-Term International Economic Position of the United States April 2009
Op-ed: Trade: An Opportunity About to Be Lost? May 20, 2011
Op-ed: New Imbalances Will Threaten Global Recovery June 10, 2010
Op-ed: How Best to Boost US Exports February 3, 2010
Op-ed: Cooling the Planet Without Chilling Trade November 13, 2009
Paper: Submission to the USTR in Support of a Trans-Pacific Partnership Agreement January 25, 2010
Working Paper 09-2: Policy Liberalization and US Merchandise Trade Growth, 1980–2006 May 2009
Policy Brief 09-2: Buy American: Bad for Jobs, Worse for Reputation February 2009
Paper: Report to the President-Elect and the 111th Congress on A New Trade Policy for the United States December 17, 2008
Book: American Trade Politics, 4th edition June 2005
Op-ed: The Payoff from Globalization June 7, 2005
Policy Brief 08-5: World Trade at Risk May 2008