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

Resumen

This paper studies the short- and long-run eects of large rms on economic development. We use evidence from one of the largest multinationals of the 20th Century: The United Fruit Company (UFCo). The rm 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 (RD) design that exploits a quasi-random assignment of land. We nd that the rm had a positive and persistent eect on living standards. Regions within the UFCo were 29% less likely to be poor than nearby counterfactual locations in 1973, with only 56% of the gap closing over the following four decades. Company documents explain that a key concern at the time was to attract and maintain a sizable workforce, which induced the rm to invest heavily in local amenities that likely account for our result. We then build a dynamic spatial model in which a rm's labor market power within a region depends on how mobile workers are across locations and run counterfactual exercises. The model is consistent with observable spatial frictions and the RD estimates, and shows that the firm increased aggregate welfare by 2.9%. This eect is increasing in worker mobility: If workers were half as mobile, the rm would have decreased aggregate welfare by 6%. The model also shows that a local monopsonist compensates workers mostly through local amenities keeping wages low, and leads to higher welfare levels than a counterfactual with perfectly competitive labor markets in all regions, if we assume amenities increase local productivity.