Multinational firms׳ entry and productivity: Some aggregate implications of firm-level heterogeneity

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    Abstract

    Despite the microeconomic evidence supporting the superior idiosyncratic productivity of multinational firms (MNFs) and their affiliates, cross-country studies fail to find robust evidence of a positive relationship between foreign direct investment and growth. In order to study the aggregate implications of MNFs entry and production, I develop a dynamic general equilibrium model with firm heterogeneity where MNFs sort according to their own productivity. The entry and production of MNFs contribute to aggregate productivity growth at decreasing rates and affect domestic producers through general equilibrium effects in the labor market. I argue that the heterogeneous composition of the population of affiliates can help explain the conflicting evidence on the impact of foreign direct investment on growth.
    Original languageEnglish
    Pages (from-to)61-80
    Number of pages20
    JournalJournal of Economic Dynamics and Control
    Volume61
    DOIs
    Publication statusPublished - Dec 2015

    Keywords

    • Multinational production
    • Heterogeneous firms
    • Technology transfer
    • Entry
    • Growth

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