Location decision of heterogeneous multinational firms |
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Authors: | Maggie Xiaoyang Chen Michael O. Moore |
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Affiliation: | Department of Economics/Elliott School, Institute for International Economic Policy, George Washington University, Washington, DC, United States |
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Abstract: | We examine how multinational firms with heterogeneous total factor productivity (TFP) self-select into different host countries. Both aggregate- and firm-level estimates suggest that more productive French firms are more likely than their less efficient competitors to invest in relatively tough host countries. Countries with a smaller market potential, higher fixed costs of investment or lower import tariffs tend to have higher cutoff productivities and attract a greater proportion of productive multinationals. This self-selection mechanism remains largely robust when we control for unobserved firm and country heterogeneity and address potential TFP endogeneity. |
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Keywords: | JEL classification: F23 D24 |
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