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Table 8 adds nuance to these findings by considering the effects of increased foreign affiliate employment only for vertically oriented foreign affiliates—those with sales to their U.S. parent firm.32 We expect increased activity at vertically oriented affiliates to have more negative effects on domestic employment, since their activities are more likely to replace those of domestic suppliers of intermediate inputs. The effects on domestic employment in multinational firms, shown in columns 1 and 2, remain positive and statistically significant. However, increases in foreign affiliate employment among vertically oriented affiliates drive decreases in domestic employment among nonmultinational firms in the same industry. Although small, these employment decreases likely reflect a combination of shifts in sourcing away from domestic suppliers and competition from multinational firms enjoying decreased costs of affiliate activity following the implementation of a BTT.

Table 8.

U.S. Industry-Level Analysis: The Effect of Offshore Employment at Vertically Oriented Affiliates on U.S. MNE versus Non-MNE Employment

Dependent Variable: Log Industry Employment—ln(Lit)
(1)(2)(3)(4)
SpecificationIVIVIVIV
SampleV-MNEV-MNENon-MNENon-MNE
industry log affiliate 0.144*** 0.143*** −0.016** −0.023*** 
employment: (lnMit(0.022) (0.022) (0.007) (0.008) 
ln(GDPus+GDPd)  −0.373  −0.297 
  (0.676)  (0.299) 
ln(GDPus-GDPd)2  0.207  0.143 
  (0.341)  (0.15) 
ln(SkillDifference)  −0.416***  0.059 
  (0.135)  (0.117) 
ln(TradeCosts)  −0.006  −0.001 
  (0.034)  (0.017) 
BIT  −0.036  0.447*** 
  (0.257)  (0.17) 
FTA  −0.013  0.14 
  (0.151)  (0.090) 
Exchange Rate  0.000  0.000 
  (0.000)  (0.000) 
Industry FE YES YES YES YES 
Year FE YES YES YES YES 
N 1,217 1,217 1,217 1,217 
R-squared 0.1535 0.1769 0.4529 0.5009 
First-Stage F-Statistic 249.75 214.42 274.63 223.05 
Endogenous Test p-Value 0.0093 0.0069 0.0194 0.0178 
Dependent Variable: Log Industry Employment—ln(Lit)
(1)(2)(3)(4)
SpecificationIVIVIVIV
SampleV-MNEV-MNENon-MNENon-MNE
industry log affiliate 0.144*** 0.143*** −0.016** −0.023*** 
employment: (lnMit(0.022) (0.022) (0.007) (0.008) 
ln(GDPus+GDPd)  −0.373  −0.297 
  (0.676)  (0.299) 
ln(GDPus-GDPd)2  0.207  0.143 
  (0.341)  (0.15) 
ln(SkillDifference)  −0.416***  0.059 
  (0.135)  (0.117) 
ln(TradeCosts)  −0.006  −0.001 
  (0.034)  (0.017) 
BIT  −0.036  0.447*** 
  (0.257)  (0.17) 
FTA  −0.013  0.14 
  (0.151)  (0.090) 
Exchange Rate  0.000  0.000 
  (0.000)  (0.000) 
Industry FE YES YES YES YES 
Year FE YES YES YES YES 
N 1,217 1,217 1,217 1,217 
R-squared 0.1535 0.1769 0.4529 0.5009 
First-Stage F-Statistic 249.75 214.42 274.63 223.05 
Endogenous Test p-Value 0.0093 0.0069 0.0194 0.0178 

Documents the effects of BTT-induced changes in foreign-affiliate employment at foreign affiliates that have nonzero sales to their U.S. parent on domestic employment at the industry level for industries that exhibit high ratios of royalty, interest, and dividend payments relative to total industry sales. Columns 1 and 2 examine employment for multinational parents in the U.S. industry while columns 3 and 4 examine all other employment in each industry. First-stage F-statistics are large for all IV specifications, though the relevant F-statistics for weak-instrument concerns appear in columns 2 and 5 of table 4 (see text for discussion). In all IV specifications, the equality of OLS and IV is rejected. Sample covers 1987–2007. Standard errors clustered by industry and year are in parentheses. Significant at *10%, **5%, and ***1%.

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