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Market Reallocation and Knowledge Spillover: The Gains from Multinational Production

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Author Info

  • Laura Alfaro

    () (Harvard Business School, Business, Government and the International Economy Unit)

  • Maggie X. Chen

    () (George Washington University)

Abstract

Quantifying the gains from multinational production has been a vital topic of economic research. Positive productivity gains are often attributed to knowledge spillover from multinational to domestic .rms. An alternative, less emphasized explanation is market reallocation, whereby competition from multinationals leads to factor reallocation and the survival of only the most productive domestic .rms. We develop a model that incorporates both aspects and quantify their relative importance in the gains from multinational production by exploring their distinct predictions for domestic distributions of productivity and revenue. We show that knowledge spillover shifts both distributions rightward while market reallocation raises the left truncation of the distributions and shifts revenue leftward. Using a rich firm-level panel dataset that spans 60 countries, we find that both market reallocation and knowledge spillover are significant sources of productivity gain. Ignoring the role of market reallocation can lead to significant bias in understanding the nature of gains from multinational production.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 12-111.

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Length: 48 pages
Date of creation: Jun 2012
Date of revision: Mar 2013
Handle: RePEc:hbs:wpaper:12-111

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Related research

Keywords: Gains from Multinational Production; Firm Selection; Market Reallocation; and Knowledge Spillover;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. On the benefits of multinational firms
    by Economic Logician in Economic Logic on 2012-07-24 14:10:00

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