This book is a collection of 18 articles co-authored by its editor, Holger Görg. The purpose of the book is to investigate and analyze the effects of multinational companies (MNCs) on their host countries. Based on several empirical studies, the book concludes that MNCs bring many benefits to these countries. To reach this conclusion, the author structured his thinking around three core components, each representing a main part of the book.
Part I consists of seven papers and compares MNCs and domestic firms in terms of productivity, technology, wages, research and development (R and D), access to finance and innovation. This part argues that MNCs have “superior characteristics” compared to domestic firms. The first three chapters are related. They show that ownership change within a firm (acquisition of a domestic establishment by a foreign MNC) has positive impacts on productivity (Ch. 1) and on both skilled and unskilled workers’ wages (Ch. 2). The positive effect on wages is explained by the provision of on-the-job training by MNCs, since training is a required knowledge to implement technologies available within the firm (Ch. 3). Chapters 4 and 5 focus on the effect of foreign acquisition on technology. Using R and D expenditure by MNCs (Ch. 4) and innovation output (Ch. 5) as proxy for technology, these two studies show that foreign ownership is positively related to the use of technology. In addition, foreign acquisition is positively related to plant survival and employment growth only if the firm is an exporter (Ch. 7). However, when comparing foreign-owned and domestic firms, the author argues that MNCs seem to create more permanent jobs on the one hand, but have higher exit probability than domestic firms in the host country on the other (Ch. 6). The first part concludes that MNCs have “firm specific assets” that translate into a productivity advantage and which enables them to be “better” than domestic firms.
While Part I investigates the direct effects of MNCs on host countries, Part II, consisting of 5 papers, investigates the indirect effects of MNCs on domestic firms within their country. Specifically, the author examines the productivity spillovers toward domestic firms following the presence of MNCs in a host country. Based on a meta-analysis of studies on the relationship between MNCs and productivity spillovers, the author concludes that the empirical methods used influence the results (Ch. 8). In fact, compared to cross-sectional data, panel data help to control for unobserved variables (e.g. industry or firm characteristics) and lead to more robust results. From a literature review, the author claims that the link between MNC presence and higher productivity in host countries relates to backward linkages and spillover channels (imitation, skills acquisition, competition and exports). He also suggests studying spillover effects, not only in firms within the same industry, but in different industries vertically linked to the MNC (Ch. 9). Empirical results show that productivity spillovers are generated only by domestic-market oriented MNCs (Ch. 10) and that spillovers toward domestic firms from backward linkages of MNCs depend on how those linkages are measured (Ch. 11). In fact, the effect of MNCs vary with the level of foreign presence within a cluster (Ch. 12).
In addition to asserting that spillover channels are under-explored in empirical studies, Part III investigates some of the mechanisms by which the productivity spillovers of MNCs on domestic firms in the host country take place. The author shows that the mobility of workers from a foreign owned firm to a domestic firm is a mechanism that leads to more productivity for domestic firms in the host country (Ch. 13). Government subsidies are also positively linked to backward linkages creation (Ch. 14). Moreover, only domestic firms that are suppliers of MNCs may enhance their productivity if these MNCs put pressure on them to reduce production costs or create new products (Ch. 15). The author argues that the presence of foreign owned firms enhances the survival probability of domestic firms operating in high technology sectors since they have good absorptive capacity (Ch. 16) and is positively related to the entry rate of domestic firms (especially as suppliers) (Ch. 17). Finally, the author looks at two channels explaining the connection between MNCs and domestic firms. He distinguishes between the factors relating to the market (capital) and the effect of competition, and he concludes that the evolution of the number of local firms according to the presence of the MNCs is a U-shaped relationship (Ch.18).
All the results presented by the author show that MNCs have positive effects on host countries. Focusing on the manufacturing sector, the book supports the positive impact of MNCs on the development of host countries. The book is structured in a clear manner, is very coherent, and presents the articles following a logical order of ideas. This makes reading it fluid and fast. The introduction summarizes the book and links the book’s articles together. The book has the advantage of being based on empirical studies conducted in different national contexts (UK, Ghana, Sweden, China and Ireland). In addition to the richness that comes with examining such diverse countries, it allows the results to be more generalizable. Similarly, the use of fairly sophisticated economic, econometric and statistical models allows a thorough and structured understanding of the effects of MNEs.
Apart from all of these strengths, the book has some weaknesses that are worth highlighting. First, as the author points out in the introduction of his book, economic, environmental, political and sociological aspects must be examined in order to have a satisfactory answer to the question of the effects of multinational enterprises on host countries. The book provides a partial answer to this question by focusing only on the study of economic aspects while using a quantitative methodology. Then, the book contributes to thinking on the quality of work in host countries following the introduction of MNCs, but does not relate to industrial relations studies of employment practices in MNCs. Similarly, the book mainly focused (except Ch. 18) on the study of foreign ownership firms that have been acquired. Other modes of foreign entry (e.g., greenfield) do not seem to be studied despite their importance. Otherwise, institutional factors seem to be neglected in these studies. The institutional and cultural distances between the country of origin and the host country are not taken into consideration. For these various reasons, I found that the book is aimed at a very specific audience (economists) and covers less the aspects studied in the field of industrial relations (such as the study of institutions, public policies and labour). Finally, despite the fact that the book is composed of several empirical studies, it mobilizes data and literature covering the period 1990-2004, yet the book was published in 2016.