Export‐supporting FDI

A large fraction of affiliates owned by multinational manufacturing companies operate in the wholesale and retail sectors. This paper proposes a model of trade, horizontal FDI, and export‐supporting FDI (ESFDI). ESFDI reduces distribution costs abroad, while production remains at home. ESFDI introduces a complementarity between trade and FDI, while trade and production abroad remain substitutes. German firm‐level FDI data show that ESFDI is quantitatively relevant. In line with the model, most firms choose either ESFDI or horizontal FDI in a given market; ESFDI is chosen by smaller parents and is strongest when distance from Germany is low.     

Incomplete contracts And Vertically Integrated Multinational Enterprises

This paper conducts an empirical analysis of intra-firm trade for vertically integrated multinational enterprises (VMNEs). Within the context of incomplete contracts, the study attempts to explain cross-industry variations in the relative importance of intra firm trade. Using data for U.S. based multinationals from 1989 to 1996, it is found that the shares of U.S. intra-firm exports and imports are positively related to the non contractible a activities of U.S. intra-firm while they are negatively related to the non contractible activities of foreign affiliates. [F23, f10, L22]     

NORTH–SOUTH TRADE WITH MULTINATIONAL FIRMS AND INCREASING PRODUCT VARIETY*

We present a model of North–South trade with multinational firms and increasing product variety. Firms engage in innovative R&D to develop new product varieties in the North, and foreign affiliates of multinational firms engage in adaptive R&D to learn how to produce product varieties in the South. We find that a shift to stronger protection of intellectual property rights in the South induces foreign affiliates of multinational firms to increase their R&D expenditures, results in a faster rate of technology transfer within multinational firms, and increases long‐run consumer welfare in both regions.     

Intra‐firm trade,exporting, importing,and firm performance

Abstract This paper examines firm heterogeneity in terms of size, wages, capital intensity, and productivity between domestic and foreign‐owned firms that engage in intra‐firm trade, firms that export and import, firms that import only, and firms that export only. As previously documented, heterogeneity between different groups of trading firms is substantial. Taking into account intra‐firm trade in addition to exporting and importing yields new insights into the productivity advantage previously established for exporting firms. The results presented here show that this premium accrues only to exporters that also import and to exporters that also engage in intra‐firm trade, but not to firms that export only. Using simultaneous quantile regressions, the paper illustrates that heterogeneity within different groups of trading firm is equally large. Some of this within‐group heterogeneity can be attributed to differences in trading partners.     

National Border Effects: Location, Not Nationality, Matters

A recent literature documents the downward impact of national borders on trade. This paper probes the relative importance of two potential sources of border effects: (1) pure locational factors, such as transport costs and tariffs; and (2) an inherent disadvantage for a firm selling in a foreign market. I am able to make this decomposition by using data on the local sales of foreign affiliates of US multinational enterprises, on US bilateral exports, and on domestic sales by host‐country firms. The “border effect” arises almost entirely from locational factors. If a firm establishes and sells from a subsidiary located in the foreign country, its local sales are about on a par with those of domestic firms in that market.     

The export intensity of foreign affiliates in transition economiesThe importance of the organization of production1

Using a unique database containing trade and industry variables of foreign‐owned companies in the Polish manufacturing industry for the years 1993–2002, we investigate the relationship between the organizational structure of multinational enterprises (MNEs) in Poland and the export structure of their affiliates. We find that labour intensity and foreign control are the main explanatory variables for the export intensity of the affiliates. Given the overall rise in export intensity over the period of investigation, our findings suggest that export‐platform FDI has become a more important mode of organization for multinational enterprises as Poland has evolved into a relatively stable economic environment where MNEs feel comfortable basing their regional operations.     

WHO GAINS FROM WHOM? SPILLOVERS,COMPETITION AND TECHNOLOGY SOURCING IN THE FOREIGN‐OWNED SECTOR OF UK MANUFACTURING

There is a growing literature explaining foreign direct investment flows in terms of ‘technology sourcing’, whereby multinational firms invest in certain locations not to exploit their firm‐specific assets in the host environment, but to access technology that is generated by host country firms. However, it is far from clear whether the literature has found significant evidence of such activity beyond a few isolated examples. This paper extends this work by allowing for the possibility of multinational enterprises (MNEs) sourcing technology not only from host country firms but also from each other within a host economy. The paper demonstrates that MNEs in the UK do indeed appropriate spillovers both from indigenous firms and from other foreign investors, but that there are also significant competition effects that act to reduce productivity in certain industries. The paper also explores which countries' affiliates gain most from technology sourcing in the UK, and which generate the greatest spillovers within the foreign‐owned sector.     

ANTIDUMPING,INTRA‐INDUSTRY TRADE,AND QUALITY REVERSALS

We examine an export game where two (home and foreign) firms produce vertically differentiated products. The foreign firm is more R&D efficient and is based in a larger and richer market. The unique (risk‐dominant) Nash equilibrium exhibits intra‐industry trade, and the foreign producer manufactures a higher‐quality product. When transport costs are low, unilateral dumping by the foreign firm arises; otherwise, reciprocal dumping occurs. For some parameters, a domestic antidumping policy leads to a quality reversal in the international market whereby the home firm becomes the quality leader. This policy is desirable for the implementing country, though world welfare decreases.     

Vertical foreign direct investment: Make,buy, and sell

According to conventional wisdom, multinational enterprises (MNEs) undertake vertical FDI to take advantage of cross‐border factor cost differences and source inputs from abroad at better terms. However, recent empirical studies document many instances in which intrafirm trade between parent firms and their vertically related foreign affiliates is absent. We provide theoretical support for these findings, demonstrating that a firm can engage in vertical FDI to exploit its intangible assets in another country and improve its input sourcing terms domestically by enhancing its cross‐threat. Furthermore, we show that the welfare implications of vertical FDI on the home and host country are neither always positive nor aligned.     

Foreign Investment and the Mediation of Trade Flows

How does foreign direct investment affect the trade between nations? While many theories of the multinational firm are based on the premise that foreign production and trade are substitutes, most empirical studies of foreign investment and trade uncover a complementary relationship. This paper shows that the mismatch between theoretical work and empirical findings is a byproduct of data aggregation. When the unique country–industry patterns of mostly OECD country foreign investments in the US are analyzed, predicted substitution patterns are revealed at the data level that roughly corresponds to broad products. The complementary effects of foreign investment on trade emerge at higher levels of aggregation.     

Do international flights promote FDI? The role of face‐to‐face communication

International passenger flights facilitate business travel for in‐person meetings abroad. However, the significance of face‐to‐face communication (FFC) is not clear. To identify the FFC channel, this paper examines whether flights promote FDI more strongly for multinational firms that face relatively intensive FFC in foreign production. Expatriate employees are used as a proxy for the FFC intensity. Using firm‐level data on Japanese multinational firms for the period 1989 to 2006, I show that more frequent flights increase new FDI entry, with the larger positive effects for multinationals in high FFC sectors. The results support the FFC channel to connect flights and FDI.     

The transfer of workers within multinationals and ownership of foreign affiliates

We study the variation in ownership shares across affiliates of the same multinational firm. Using the micro-level data on foreign affiliates of South Korean multinationals, we construct a proxy for the headquarter intangible asset using transferred Korean workers from the parent to the affiliate. Our results show a strong relationship with the parent ownership share even after controlling for the parent fixed effect. Our empirical evidence thus extends support for the theory on multinational firm boundaries at the micro-level.     

Power in the multinational corporation in industry equilibrium

Recent theories of the multinational corporation introduce the property rights model of the firm and examine whether to integrate or outsource firm activities locally or to a foreign country. This paper focuses instead on the internal organization of the multinational corporation by examining the power allocation between headquarters and subsidiaries. We provide a framework to analyse the interaction between the decision to serve the local market by exporting or FDI, market access and the optimal mode of organization of the multinational corporation. We find that subsidiary managers are given decision power to run the firm at intermediate levels of host country competition. We then provide comparative statics on the optimal organization of the multinational corporation for changes in fixed FDI entry costs, trade costs, as well as changes in information technology.      

Location decisions of non‐bank financial foreign direct investment: Firm‐level evidence from Europe

The non‐bank financial sector in Europe has more than doubled in size between 2005 and 2015 reflecting the substantial growth in shadow banking activities. However, a large proportion of the non‐bank financial sector that remains unmapped as granular balance sheet information is not available for over half of the sector. Motivated by these data gaps and employing firm‐level data, this paper examines the location decisions of newly incorporated foreign affiliates in the non‐bank financial sector across 27 European countries over the period 2004 to 2012. The probability of a country being chosen as the location for a new foreign affiliate is found to be negatively associated with higher corporate tax rates and geographic distance but increases with the size and financial development of the host country. The financial regulatory regime in the host country and gravity related controls such as the home and host country sharing a common legal system, language, border, and currency are also found to impact the likelihood of non‐bank financial FDI.     

Export promotion and intra‐industry reallocations

Publicly funded/subsidized export promotion agencies reducing informational barriers to export and thus firm‐level fixed/sunk costs of exporting are present in most countries. This paper develops a two‐country one‐sector heterogeneous firms model with origin‐specific publicly funded export promotion agencies and shows how the public good nature of export‐relevant information and the ability to engage in global public affairs may rationalize the existence of such agencies. A novel finding of the model is that gains from export promotion are shared with the trade partner via intra‐industry reallocations.     

Credit Constraints,Technology Choice and Exports: A Firm‐level Study for Latin American Countries

In this paper, constraints on technology choice and credit access are introduced into a firm‐level trade model in a dynamic setting in order to explain factors that limit benefits to a firm from trade liberalization. Theoretical analysis shows that firms face credit constraints depending on their initial productivity and the cost of credit. As a result, credit‐constrained firms may not be able to cross the minimum productivity threshold needed to enter and compete in a foreign market. Empirical analysis using firm‐level panel data for six Latin American countries confirms that financial constraints negatively influence firms' export and investment decisions.     

What drives the localization of Spanish multinationals in developing and transition countries?

In this paper, we investigate the location determinants of Spanish multinational firms in developing and transition economies. We pay particular attention to the role played by market potential and agglomeration economies as decisive factors in location. We also analyze whether, beyond the observed attributes, there are any significant differences across regions in terms of attracting foreign affiliates. With this aim, we estimate a mixed logit model, which allows us to endogenously consider the existence of complex substitution patterns among different destinations. Our results confirm that Spanish investment in developing and transition countries depends on market potential and agglomeration externalities. The intensity of these externalities, however, depends on the nationality of competitors, greater rivalry being observed among Spanish‐owned affiliates. Furthermore, our findings show that the location of multinational firms responds both to factors related to the local business environment, including the cost and quality of labor and infrastructures, and to the existence of specific regional effects.     

Strategic Foreign Direct Investment and Exchange‐Rate Uncertainty

We investigate how exchange‐rate uncertainty affects the foreign direct investment decision of a risk‐neutral multinational firm (MNF). We assume the firm can open plants, each with decreasing average costs, in two different countries. Under certainty, the MNF would open only one plant. We demonstrate that with sufficient exchange‐rate volatility, the firm can increase expected profits by opening several plants. We also show that if the MNF faces a competitor in the foreign market, the exchange risk, by inducing the MNF to open plants in both markets, may prevent entry by the local competitor.     

Estimating the effects of non‐discriminatory trade policies within structural gravity models

We propose a simple method to identify the effects of unilateral and non‐discriminatory trade policies on bilateral trade within a theoretically consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra‐national trade flows. The use of intra‐national sales allows identification of the effects of non‐discriminatory trade policies such as most favoured nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of most favoured nation tariffs and “time to export” as representative non‐discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country‐specific characteristics as well as any non‐trade policies.     

WHAT DETERMINANTS AFFECT THE CAPITAL STRUCTURE OF CONSUMER CO‐OPERATIVES? THE CASE OF iCOOP KOREA

The capital structure of co‐operatives can differ from that of IOB (Investor‐Owned Businesses) since the two organizations differ in their aims, governance structures and decision‐making principles. This paper examines whether the determinants verified in IOB affect the leverage ratio of consumer co‐operatives. Consumer co‐operatives in South Korea have been rapidly growing during the last decade. There are two leading theories in finance that explain capital structure: the trade‐off and pecking order theories. Focusing on consumer co‐operatives in South Korea, the paper aims to analyze empirically what determinants have effect on the capital structure of consumer co‐operatives and which of the two theories is more plausible. This study reveals that profitability and firm size have a significantly negative effect on leverage while tangibility and growth have a significantly positive effect on it. In conclusion, it seems that neither of the theories above perfectly accounts for the capital structure of consumer co‐operatives because of the differences in governance characteristics between consumer co‐operatives and IOB as well as in the costs of bankruptcy, agency, informational asymmetry and securities issuance.