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Liquidity constraints and linkages with multinationals

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  • Spatareanu, Mariana
  • Javorcik, Beata S.

Abstract

Using a unique data set from the Czech Republic for 1994-2003, this study examines the relationship between a firm's liquidity constraints and its supply linkages with multinational corporations (MNCs). The empirical analysis indicates that Czech firms supplying MNCs are less credit constrained than non-suppliers. A closer inspection of the timing of the effect, however, suggests that this result is due to less constrained firms self-selecting into becoming MNC suppliers rather than the benefits derived from the supplying relationship. As recent literature finds that productivity spillovers from foreign direct investment (FDI) are most likely to take place through contacts between MNCs and their local suppliers, our finding suggests that well-developed financial markets may be needed in order to take full advantage of the benefits associated with FDI inflows. --

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Bibliographic Info

Paper provided by Hamburg Institute of International Economics (HWWI) in its series HWWI Research Papers with number 2-14.

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Date of creation: 2008
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Handle: RePEc:zbw:hwwirp:2-14

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Keywords: foreign direct investment; cash flow; liquidity constraints;

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References

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  1. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series 548, William Davidson Institute at the University of Michigan.
  2. Gelos, R. Gaston & Werner, Alejandro M., 2002. "Financial liberalization, credit constraints, and collateral: investment in the Mexican manufacturing sector," Journal of Development Economics, Elsevier, Elsevier, vol. 67(1), pages 1-27, February.
  3. Torfinn Harding & Beata Smarzynska Javorcik, 2007. "Developing economies and international investors. Do investment promotion agencies bring them together?," Discussion Papers, Research Department of Statistics Norway 513, Research Department of Statistics Norway.
  4. Thomas Chaney, 2013. "Liquidity Constrained Exporters," NBER Working Papers 19170, National Bureau of Economic Research, Inc.
  5. Anca Pruteanu, 2004. "Was There Evidence of Credit Rationing in the Czech Republic?," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 42(5), pages 58-72, September.
  6. Holger Görg & David Greenaway, 2004. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Bank Research Observer, World Bank Group, World Bank Group, vol. 19(2), pages 171-197.
  7. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Financing Constraints and Corporate Investment: Response to Kaplan and Zingales," NBER Working Papers 5462, National Bureau of Economic Research, Inc.
  8. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(2), pages 707-712, May.
  9. Laura Alfaro & Areendam Chanda & Sebnem Kalemli-Ozcan & Selin Sayek, 2006. "How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages," DEGIT Conference Papers c011_023, DEGIT, Dynamics, Economic Growth, and International Trade.
  10. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(1), pages 33-60, February.
  11. Lubomir Lizal & Jan Svejnar, 2001. "Investment, Credit Rationing and the Soft Budget Constraint: Evidence from Czech Panel Data," William Davidson Institute Working Papers Series 363, William Davidson Institute at the University of Michigan.
  12. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 3810, July.
  13. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  14. Jozef Konings & Marian Rizov & Hylke Vandenbussche, 2002. "Investment and Credit Constraints in Transition Economies: Micro Evidence from Poland, the Czech Republic, Bulgaria and Romania," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 11202, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  15. Harrison, Ann E. & Love, Inessa & McMillan, Margaret S., 2002. "Global capital flows and financing constraints," Policy Research Working Paper Series 2782, The World Bank.
  16. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  17. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 169-215, February.
  18. Javorcik, Beata Smarzynska & Spatareanu, Mariana, 2008. "To share or not to share: Does local participation matter for spillovers from foreign direct investment?," Journal of Development Economics, Elsevier, Elsevier, vol. 85(1-2), pages 194-217, February.
  19. Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002. "FDI and Economic Growth: The Role of Local Financial Markets," Macroeconomics, EconWPA 0212007, EconWPA.
  20. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  21. Ann E. Harrison & Margaret S. McMillan, 2001. "Does Direct Foreign Investment Affect Domestic Firms' Credit Constraints?," NBER Working Papers 8438, National Bureau of Economic Research, Inc.
  22. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, Elsevier, vol. 74(2), pages 402-421, March.
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Cited by:
  1. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2008. "Globalization and Innovation in Emerging Markets," Working Papers, Research Seminar in International Economics, University of Michigan 583, Research Seminar in International Economics, University of Michigan.
  2. Sandra PONCET & Walter STEINGRESS & Hylke VANDENBUSSCHE, 2009. "Financial constraints in China: firm-level evidence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2010. "Does foreign direct investment promote growth? Exploring the role of financial markets on linkages," Journal of Development Economics, Elsevier, Elsevier, vol. 91(2), pages 242-256, March.

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