Determinants of Sales Destinations of U.S. Multinational Firms' Affiliates in Developing Countries

This study examines the determinants of the sales of .U.S. multinational firms' affiliates to alternative destinations, including sales to other affiliate firms in a host country and a source country markets as well as sales to other non-affiliate persons in each market. Sample host countries are drawn from developing economies where U.S. multinational firms had affiliate firms during the period 1983–1998. The results of the study reveal that affiliates of multinational firms manipulate sales to minimize international taxation. This is supported by the finding that foreign corporate income taxes: affect sales between affiliate firms favorably, unlike its impacts on sales of affiliates to non-affiliate persons in both a host country and source country markets. Considering all markets together, economic volatility and political instability have minimal impacts on sales of affiliates to other affiliate firms compared to their impacts on sales to non-affiliate persons. The results also confirm that host countries' economic policy reforms and membership in multinational investment guarantee agencies facilitate sales of affiliates to other affiliate firms.