Working Paper

Multinationals, Monopsony, and Local Development: Evidence from the United Fruit Company

Abstract: This paper studies the short- and long-run effects of large firms on economic development. We use evidence from one of the largest multinationals of the 20th century: the United Fruit Company (UFCo). The firm was given a large land concession in Costa Rica—one of the so-called "Banana Republics"—from 1899 to 1984. Using administrative census data with census-block geo-references from 1973 to 2011, we implement a geographic regression discontinuity design that exploits a quasi-random assignment of land. We find that the firm had a positive and persistent effect on living standards. Company documents explain that a key concern at the time was to attract and maintain a sizable workforce, which induced the firm to invest heavily in local amenities that can account for our result. Consistent with this mechanism, we show, empirically and through a proposed model, that the firm's welfare effect is increasing in worker mobility.

Keywords: Long-run development; Monopsony power; Foreign firms;

JEL Classification: F23; N16; O43;

https://doi.org/10.21034/iwp.46

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Opportunity and Inclusive Growth Institute Working Papers

Publication Date: 2021-03-15

Number: 46