OLS estimates are biased and inconsistent if the lagged variable is correlated with the error
term, as it is frequent in dynamic panels with a short time dimension. Equation (3) is therefore
estimated by using the GMM estimators proposed by Arellano and Bond (1991).
Table 2 reports the econometric results separately for the eleven sample countries. Coefficients
γ 2, γ з and γ 4 are short-run output and factor price elasticities of labour demand for NEs. They all
have the expected sign, they are generally significant, and their values fall in ranges generally thought as
admissible (Hamermesh (1993)). Coefficients γ7, γ8 and γ9 capture the difference in these elasticities
between MNEs and NEs. These interacted terms are mostly not significant. This implies that short-run
output and factor price elasticities are not significantly different between MNEs and NEs. The
exceptions are Denmark, Spain and France where wage elasticities of MNEs (given by y4 + y9 ) are
smaller (in absolute values). The coefficient γι measures the persistence of labour demand for national
firms, which as expected is for all countries smaller than one. The coefficient γ6 measures the
difference of persistence between national and multinational firms, and is always negative and
significant. The fact that the sum (γι + γ 6 ) is very close to 0 for all countries means that MNEs adjust
their labour demands almost fully within a year, and do that significantly faster than national firms.
Summing up, we find that short-run wage and output elasticities are in the expected ranges and
that they do not differ significantly between MNEs and NEs. In contrast, we find that MNEs adjust
within one year to shocks affecting labour demand, much faster than national firms. Given the
difference in the speed of adjustment of labour demands between NEs and MNEs it is important to
compare the two groups of firms in terms of their long term elasticities. These are discussed in the next
section.
10
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