Chen, Maggie Xiaoyang and Moore, Michael (2009): Location decision of heterogeneous multinational firms. Published in: Journal of International Economics , Vol. 2, No. 80 (March 2010): pp. 188-199.
Download (600Kb) | Preview
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 the potential TFP endogeneity.
|Item Type:||MPRA Paper|
|Original Title:||Location decision of heterogeneous multinational firms|
|Keywords:||multinational firm, location decision, firm heterogeneity, productivity|
|Subjects:||F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
|Depositing User:||Maggie Chen|
|Date Deposited:||17. Sep 2011 23:02|
|Last Modified:||13. Feb 2013 12:01|
Ai, C.R., Norton, E.C., 2003. Interaction terms in logit and probit models. Economics Letters 80(1), 123-129.
Baltagi, B. H., Egger, P., and Pfaffermayr, M., 2007. Estimating Models of Complex FDI: Are There Third-Country Effects? Journal of Econometrics 140 (1), 260-281.
Bernard, A., Eaton, J., Jensen, J.B., and Kortum, S., 2003. Plants and productivity in international trade. American Economic Review 93 (4), 1268-1290.
Bernard, A., Jensen, J.B., 1999. Exceptional exporters performance: cause, effect or both? Journal of International Economics 47 (1), 1-25.
Bernard, A., Jensen, J.B., 2004. Why some firms export. Review of Economics and Statistics 86 (2), 561-569.
Blonigen, B., 2002. Tariff-jumping antidumping duties. Journal of International Economics 57 (1), 31-50.
Blonigen, B., 2005. A review of the empirical literature on FDI determinants. Atlantic Economic Journal 33 (4), 383-403.
Blonigen, B., Davies, R., Waddell, G., and Naughton, H., 2007. FDI in space: spatial autoregressive relationships in foreign direct investment. European Economic Review 51 (5), 1303-1325.
Brainard, S. L., 1997. An empirical assessment of proximity-concentration trade-off between multinational sales and trade. American Economic Review 87 (4), 520-544.
Carr, D., Markusen, J., and Maskus, K., 2001. Estimating the knowledge-capital model of the multinational enterprise. American Economic Review 91 (3), 691-708.
Chen, M., Moore, M., 2008. Location Decision of Heterogeneous Multinational Firms. George Washington University working paper.
Clerides, S., Lach, S., and Tybout, J., 1998. Is learning by exporting important? Micro-dynamic evidence from Columbia, Mexico and Morocco. Quarterly Journal of Economics 113 (3), 903-948.
Crozet, M., Head, K., and Mayer, T., 2009. Quality sorting and trade: firm-level evidence for French wine. mimeo.
Eaton, J., Kortum, S., and Kramarz, F., 2008. An anatomy of international trade: evidence from French firms. mimeo, New York University.
Ekholm, K., Forslid, R., and Markusen, J., 2007. Export-platform foreign direct investment. Journal of European Economic Association 5 (4), 776-795.
Girma, S., Görg, H., and Strobl, E., 2004. Exports, international investment, and plant performance: evidence from a non-parametric test. Economics Letters 83 (3), 317-324.
Girma, S., Kneller, R., and Pisu, M., 2005. Exports versus FDI: an empirical test. Weltwirtschaftliches Archiv 141 (2), 855-866.
Greene, W., 2009. Discrete Choice Modeling, in: Mills, T. and Patterson, K. (Eds.), The Handbook of Econometrics, Vol. 2, Applied Econometrics. Palgrave, London
Guiso, S., Schivardi, F., 2007. Spillovers in Industrial Districts. Economic Journal 117 (516), 68-93.
Haskel, J.E., Pereira, S., and Slaughter, M., 2007. Does inward foreign direct investment boost the productivity of domestic firms? Review of Economics and Statistics 89 (2), 482-496.
Head, K., Mayer, T., 2004. Market potential and the location of Japanese investment in the European Union. Review of Economics and Statistics 86 (4), 959-972.
Head, K., Ries, J., 2003. Heterogeneity and the foreign direct investment versus exports decision of Japanese manufacturers. Journal of the Japanese and International Economies 17 (4), 448-467.
Head, K., Ries, J., 2008. FDI as an outcome of the market for corporate control: theory and evidence. Journal of International Economics 74 (1), 2-20.
Heckman, J., 1979. Sample Selection Bias as a Specification Error. Econometrica 47 (1), 153-161.
Helpman, E., 1984. A simple theory of international trade with multinational corporations. Journal of Political Economy 92 (3), 451-471.
Helpman, E., Melitz, M., and Yeaple, S., 2004. Export versus FDI with heterogeneous firms. American Economic Review 94 (1), 300-316.
Javorcik, B. S., 2004. Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review 94 (3), 605-627.
Keller, W., Yeaple, S., forthcoming. Multinational enterprises, international trade, and technology diffusion: a firm-level analysis of the productivity effects of foreign competition in the United States. Review of Economics and Statistics.
Levinsohn, J., Petrin, A., 2003. Estimating production functions using inputs to control for unobservables. Review of Economic Studies 70(2), 317-342.
Liu, X., Lovely, M., and Ondrich, J., forthcoming. The location decisions of foreign investors in China: Untangling the effect of wages using a control function approach. Review of Economics and Statistics.
Markusen, J., Venables, A., 1998. Multinational firms and the new trade theory. Journal of International Economics 46 (2), 183-203.
Markusen, J., Venables, A., 2000. The theory of endowment, intra-industry and multi-national trade. Journal of International Economics 52 (2), 209-234.
Mayer, T., Méjean, I., and Nefussi, B., 2007. The location of domestic and foreign production affiliates by French multinational firms. CEPII working paper 2007-07.
Melitz, M., 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71 (6), 1695-1725.
Motta, M., Norman, G., 1996. Does economic integration cause foreign direct investment? International Economic Review 37 (4), 757-783.
Nefussi, B., 2006. Exports versus FDI: evidence from two French industries. mimeo.
Petrin, A., Train, K., 2005. Tests for omitted attributes in differentiated product models. University of Chicago GSB working paper.
Petrin, A., Train, K., 2006. Control function corrections for omitted attributes in differentiated product markets. Quantitative Marketing and Economics.
Van Biesebroeck, J., 2008. The sensitivity of productivity estimates: revisiting three important debates. Journal of Business and Economic Statistics 26(3), 321-338 World Investment Report, 2006. United Nations Conference on Trade and Development.
Yeaple, S., 2003. The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment. Journal of International Economics 60 (2), 293-314.
Yeaple, S., 2009. Firm heterogeneity and the structure of U.S. multinational activity: an empirical analysis. Journal of International Economics 78 (2), 206-215.