Do domestic firms learn to export from multinationals?

Attracting inward investment is a major preoccupation of policymakers worldwide, and a wide range of instruments, including direct subventions, are deployed to attract multinational enterprises (MNEs). Intervention is predicated on the assumption that there are direct productivity spillovers associated with the presence of MNEs and the policy of attracting them is targeted at capturing these externalities. Yet robust evidence on direct spillovers is hard to find. An underexplored indirect channel for productivity spillovers is via exports. Exporting firms are more productive than nonexporting firms. Thus, if the presence of MNEs results in more indigenous firms exporting, an indirect productivity spillover will result. In this paper, we identify possible transmission mechanisms for export spillovers and test for their existence on a large panel of firms in the UK. Our results confirm positive spillover effects from MNEs on the decision to export of UK-owned firms as well as on their export propensity.     

Estimation of foreign MNEs spillovers in Spain

Using Spanish firm-level data, we estimate productivity effects of spillovers from foreign multinationals to domestic firms in both manufacturing and service sectors. We find evidence of a positive productivity effect from multinationals on domestic firms operating in the same industry. Analyzing inter-industry linkages, we find evidence consistent with positive productivity spillovers from forward linkages (i.e. from suppliers to buyers) and negative productivity spillovers from backward linkages (i.e. from buyers to suppliers). Our main results hold when analyzing differences between multinational and domestic firms, and for periods of economic growth and recession, although some differences arise. Interestingly, we find evidence supporting a positive role of spillovers during the last recession period.     

Does eliminating international profit shifting increase tax revenue in high-tax countries?

We analyze under what conditions initiatives intended to eliminate profit shifting (such as the OECD BEPS action plan and the more recent European implementation of the ATAD) can be successful, given that these actions may induce multinational companies to relocate activities to low-tax countries. We demonstrate that removing tax-motivated profit shifting increases tax revenue in the onshore region if the low-tax jurisdiction is not too efficient in providing attractive infrastructure. This outcome is more easily achieved when the high-tax country is able to counter the shifting of international activity using infrastructure investment to compete with the tax haven rather than being passive. International regulations aimed at combating aggressive tax avoidance should anticipate the adverse effects induced by the resulting emergence of other forms of base erosion.     

Multinational Firms and Technology Transfer

We construct an oligopoly model in which a multinational firm has a superior technology compared to local firms. Workers employed by the multinational acquire knowledge of its superior technology. The multinational may pay a wage premium to prevent local firms from hiring its workers and thus gaining access to their knowledge. In this setting, the host government has an incentive to attract FDI due to technology transfer to local firms or the wage premium earned by employees of the multinational firm. However, when FDI is particularly attractive to the multinational firm, the host government has an incentive to discourage FDI.
JEL classification : F 13; F 23; J 41; L 13; O 14; O 33; O 38     

Tough Love: Do Czech Suppliers Learn from their Relationships with Multinationals?*

Countries strive to attract foreign direct investment hoping that knowledge brought by multinationals will spill over to domestic producers. While the literature has cast doubt on the existence of spillovers within industries, it has found evidence of spillovers from multinationals to the supplying sectors. However, the existing studies rely on industry‐level proxies rather than information on actual relationships between suppliers and multinationals. This study goes one step further by employing a unique dataset from the Czech Republic where such relationships can be identified. It finds evidence consistent with both high productivity firms having a higher probability of supplying multinationals as well as suppliers learning from their relationships with multinationals.     

Multinational enterprises and technological spillovers: An evolutionary model

This paper analyses the determinants of the impact of foreign multinational enterprises on the technological development of domestic firms. It argues that the consequences of the foreign presence change according to market and technological conditions. An evolutionary model of technological competition between foreign and domestic firms is developed which is able to generate both vicious and virtuous circles of development in locations affected by foreign MNE activities. Theoretical analysis is tested against the empirical evidence for the UK economy (1983–1989).     

Going Multinational: What are the Effects on Home‐Market Performance?

Abstract. This paper compares the home‐market performance of German multinational enterprises (MNEs) and national firms, both before and after switching from national to multinational activities. Regarding the former case, our results show that future multinationals outperform domestic firms. When assessing the ex post performance of multinationals, selectivity issues must be taken into account. Applying an endogenous treatment model, it turns out that after switching, both productivity and wage growth are higher at newly founded MNEs. While capital intensities increase compared with those of national firms, employment growth rates are negatively related to switching, suggesting that home and foreign employment are substitutes.     

Productivity effects of international outsourcing: evidence from plant-level data

Abstract.  We investigate the impact of international outsourcing on productivity using plant-level data for Irish manufacturing. Specifically, we distinguish the effect of outsourcing of materials from services inputs. Moreover, we examine whether the impact on productivity is different for plants being more embedded in international markets through exporting or being part of a multinational. Our results show robust evidence for positive effects from outsourcing of services inputs for exporters, either domestic or foreign owned. By contrast, we find no statistically significant evidence of an impact of international outsourcing of services on productivity for firms not operating on the export market.     

Cross-border acquisitions and taxes: efficiency and tax revenues

Abstract .  We develop a theoretical oligopoly model to study how international differences in profit and capital gains taxes affect foreign acquisitions. Reductions in foreign profit taxes tend to trigger inefficient foreign acquisitions, while reductions in foreign capital gains taxes may trigger efficient foreign acquisitions. Foreign acquisitions can increase domestic tax revenues even when profit taxes are evaded. The reason is that bidding competition between foreign firms ensures that all benefits from the acquisition, including tax advantages, are captured by a domestic seller paying capital gains taxes. Tax code issues, such as the treatment of goodwill, are shown to affect the pattern of foreign acquisitions.     

Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors

This study uses firm-level panel data from Romania to examine whether the origin of foreign investors affects the degree of vertical spillovers from FDI. Investors' origin may matter for spillovers to domestic producers supplying intermediate inputs in two ways. First, the share of intermediates sourced locally by multinationals is likely to increase with the distance between the host and the source economy. Second, the sourcing pattern is likely to be affected by preferential trade agreements. In this case, the Association Agreement between Romania and the European Union (EU) implies that inputs sourced from the EU are subject to a lower tariff than inputs sourced from the United States or Canada. This means that on average American investors may have a greater incentive than EU investors to source from Romania and hence present a greater potential for vertical spillovers. The empirical analysis produces evidence consistent with this hypothesis. The results show a positive association between the presence of American companies in downstream sectors and the productivity of Romanian firms in the supplying industries and no significant relationship in the case of European affiliates. The results also indicate that Romanian firms in sectors whose products are expensive to transport benefit more from downstream presence of American affiliates than Romanian firms in sectors with low shipping costs. No such pattern is found for European affiliates.     

Foreign acquisition,plant survival,and employment growth

Abstract This paper analyzes the effect of foreign acquisition on survival and employment growth of targets using data on Swedish manufacturing plants. We separate targeted plants into those within Swedish MNEs, Swedish exporting non‐MNEs, and purely domestic firms. The results, controlling for possible endogeneity of acquisition using IV and propensity score matching approaches suggest that acquisition by foreign owners increases the lifetime of the acquired plants only if the plant was an exporter. The effect is robust to controlling for domestic acquisitions and differs between horizontal and vertical acquisitions. We find robust positive employment growth effects only for exporters and only if the takeover is vertical.