Multinational enterprises and between-firm wage inequality across European regions

This paper examines the impact of multinational enterprises (MNEs) on wage inequality between firms across European regions. Using firm-level data from the Orbis Europe dataset over the period 2012–2021, we uncover a pattern of rising between-firm wage dispersion coinciding with increasing MNE presence. To identify causal effects, we address potential endogeneity through the use of instrumental variables. The results of this analysis indicate that the regional presence of MNEs significantly contributes to increased wage inequality between firms across European regions. The effects are more pronounced for MNE parent firms and top-performing foreign affiliates, underscoring the role of international superstar firms in driving regional wage disparities. This research advances the understanding of distributional impacts of foreign direct investment and its implications for regional inequalities.