To overcome such shortcomings in the literature, Harrison and McMillan estimated the unconditional labour demand function for domestic employment based on a price vector of domestic and foreign countries. In addition, because changes in domestic output may result from FDI itself, the estimated coefficients of FDI may include a substantial bias that prevents evaluation of the magnitude of its effects. Given the rapidly expanding Asian markets, the effects of FDI may vary according to its destination namely, impacts may differ depending on whether FDI occurs in China, Vietnam, Thailand, or outside of Asian markets, such as the US. However, they did not distinguish between the destinations of FDI. Their study found “some evidence that expansion of overseas operations may have helped to maintain the level of home employment” (p. Yamashita and Fukao estimated the labour demand function for domestic manufacturing employment in Japan, to which they added the amount of FDI, conditional on the domestic output of each firm. Our study builds upon research by Yamashita and Fukao (2010) and Harrison and McMillan (2011). This enables us to identify the relationship between global resource allocation by the multinational firms and changes in prices at home and in foreign countries. These data include information such as employment and wages at both the parent firm and foreign affiliate levels. An advantage of Japanese data is the availability of parent-foreign affiliate matched data. We focus on Japanese multinationals, especially in the manufacturing sector. We empirically examine how and to what extend disemployment is related to FDI. Such positive effects may offset or even exceed the negative effects. One reason is that foreign direct investment (FDI) usually initiates increases in the production of final goods in foreign countries, which positively affects the production of intermediate inputs in the home country, resulting in the maintenance of, or an increase in, the demand for domestic labour. However, previous studies, including those conducted in Japan, have not necessarily confirmed this phenomenon of ‘exporting jobs’. In particular, the decline in manufacturing jobs is believed to have been the consequence of globalisation. For example, increased competition with foreign countries forces firms to relocate their production sites overseas, which results in disemployment in the home country. With the growing activities of multinationals, one of the major concerns for policymakers in developed countries is the disemployment caused by multinationals, especially in the manufacturing sector.
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