Simulating heterogeneous multinational firms

This paper develops a micro-simulation framework for multinational entry and sales activities across countries. The model is based on Eaton, Kortum, and Kramarz's (2010) quantitative trade model adapted towards multinational production. Using micro data on Japanese manufacturing firms, we first stylize the empirical regularities of multinational entry and sales activity and estimate the model's structural parameters with simulated method of moments. We then demonstrate that our adapted model is able to replicate important dimensions of the in-sample moments conditioned in our estimation strategy. Importantly, it is able to replicate activity under an economic period with a far different level of FDI barriers than was conditioned upon in our estimation sample. Overall, our research highlights the richness of the simulation framework for performing counterfactual analysis of various FDI policies.

Transport modal choice by multinational firms : firm-level evidence from Southeast Asia

We examine transport modal decision by multinational firms to shed light on the role of freight logistics in multinational activity. Using a firm-level survey in Southeast Asia, we show that foreign ownership has a significantly positive and quantitatively large impact on the likelihood that air/sea transportation is chosen relative to truck shipping. This result is robust to the shipping distance, cross-border freight, and transport infrastructure. Both foreign-owned exporters and importers also tend to use air/sea transportation. Thus, our analysis presents a new distinction between multinational and domestic firms in their decision over transport modes.

Heterogeneous multinational firms and productivity gains from falling FDI barriers

During the past decade of declining FDI barriers, small domestic firms disproportionately contracted while large multinational firms experienced a substantial growth in Japan’s manufacturing sector. This paper quantitatively assesses the impact of FDI globalization on intra-industry reallocations and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton, Kortum, and Kramarz (2011) to micro-level data on Japanese multinational firms. Estimating the structural parameters of the model, we demonstrate that the model can strongly replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20% reduction in FDI barriers is found to generate a 30.7% improvement in aggregate productivity through market-share reallocation.

The regional and global competitiveness of multinational firms

International competitiveness ultimately depends upon the linkages between a firm’s unique, idiosyncratic capabilities (firm-specific advantages, FSAs) and its home country assets (country-specific advantages, CSAs). In this paper, we present a modified FSA/CSA matrix building upon the FSA/CSA matrix (Rugman 1981). We relate this to the diamond framework for national competitiveness (Porter 1990), and the double diamond model (Rugman and D’Cruz 1993). We provide empirical evidence to demonstrate the merits and usefulness of the modified FSA/CSA matrix using the Fortune Global 500 firms. We examine the FSAs based on the geographic scope of sales and CSAs that can lead to national, home region, and global competitiveness. Our empirical analysis suggests that the world’s largest 500 firms have increased their firm-level international competitiveness. However, much of this is still being achieved within their home region. In other words, international competitiveness is a regional not a global phenomenon. Our findings have significant implications for research and practice. Future research in international marketing should take into account the multi-faceted nature of FSAs and CSAs across different levels. For MNE managers, our study provides useful insights for strategic marketing planning and implementation.

The outsourcing strategy of local and multinational firms: A supply base perspective

Firms outsource through connecting to local and global supply bases and making such connections produces costs of search and evaluation, which are a function of transaction characteristics and firm capabilities. We argue that firms outsource more when those costs are low. Hence, domestic subsidiaries of multinational firms, with low cost access to both local and global supply bases, outsource more than either domestic firms or foreign subsidiaries, as confirmed by evidence from a large data panel. We also propose that among foreign subsidiaries, distance from the home country co-determines search and evaluation costs such that subsidiaries from more distant countries outsource less. This is confirmed for geographic distance, but a positive effect is found for political distance and a mixed effect for cultural distance.

National boundaries and the location of multinational firms in Europe

Using data on 5,102 subsidiaries established in the period 1991–1999, we examine the location choice of multinational firms of different nationalities in 47 regions of five EU countries. In particular we estimate a nested logit model and find that European multinationals consider regions across different countries as relatively closer substitutes than regions within national borders. This is consistent with the hypothesis that European regions compete to attract foreign direct investments relatively more across than within countries. However, in line with previous studies, we also find that national boundaries still play some role in choices made by non-European multinationals.

Location choices of multinational firms in Europe: the role of EU cohesion policy

Using data on 5509 foreign subsidiaries established in 50 regions of 8 EU countries over the period 1991–1999, we estimate a mixed logit model of the location choice of multinational firms in Europe. In particular, we focus on the role of EU Cohesion Policy in attracting foreign investors from both within and outside Europe. We find that, after controlling for the role of agglomeration economies as well as a number of other regional and country characteristics and allowing for a very flexible correlation pattern among choices, Structural and Cohesion funds allocated by the EU to laggard regions have indeed contributed to attracting multinationals. These policies as well as other determinants play a different role in the case of European investors as opposed to non-European ones.

Local Firms in Latecomer Developing Countries amidst China's Rise -The case of Vietnam's motorcycle industry-

This paper examines the impact of China's recent rise on the development of local firms in latecomer developing countries. Based on a detailed analysis of Vietnam's motorcycle industry, the paper argues that China's impact may go beyond what a trade analysis suggests. Indeed, China's rise induced a dynamic transformation in the structure of value chains within Vietnam's motorcycle industry, bringing about far-reaching consequences on the development and upgrading trajectories of local firms. The implications of the case study for the wider "global value chain" approach is also discussed.

The determinants of offshore production by Multinational Corporations (MNCs) : a comparison of Japanese and US MNCs

This study employs confidential affiliate-level panel data to improve measures of foreign affiliate activities of Japanese firms in manufacturing sectors. Combining existing data on U.S. MNCs with the Japanese data, we illustrate the pattern and determinant of their foreign affiliate sales by destination market across countries and industries for the period 1989-2005. Among our results, Japanese and U.S. MNCs are similar in the substantial growth of their foreign affiliate sales and the importance of sales to local markets. However, Japanese MNCs are distinctive from U.S. MNCs in that Japanese affiliate sales in Asia were prominently higher in host markets with lower educational attainment.