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Multinational Expansion in Time and Space

Author

Listed:
  • Stefania Garetto

    () (BU, CEPR, and NBER)

  • Lindsay Oldenski

    () (Georgetown University)

  • Natalia Ramondo

    () (UCSD and NBER)

Abstract

This paper studies the expansion patterns of the multinational enterprise (MNE) in time and space. Using a long panel of US MNEs, we document that: MNE affiliates grow by exporting to new markets; the activities of MNE affiliates persist during the affiliate’s life, usually starting with sales to their host market and eventually expanding to export markets; and MNE affiliates’ entry into new locations does not depend on the location of preexisting affiliates. Informed by these facts, we develop a multi-country quantitative dynamic model of the MNE that features heterogeneity in firm-level productivity, persistent aggregate shocks, and a rich structure of costs that affect MNE expansion. Importantly, MNE affiliates can decouple their locations of production and sales, and endogenously choose to enter or exit the host and the export markets. We introduce a compound option formulation that allows us to capture in a tractable way the rich heterogeneity that is observed in the data and that is necessary for quantitative analysis. Using the calibrated model, our quantitative application to Brexit reveals that export platforms are important for understanding the reallocation of MNE activity in time and space, and that the nature of the frictions to MNE activities matters for aggregate firm dynamics.

Suggested Citation

  • Stefania Garetto & Lindsay Oldenski & Natalia Ramondo, 2019. "Multinational Expansion in Time and Space," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-308, Boston University - Department of Economics.
  • Handle: RePEc:bos:iedwpr:dp-308
    as

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    File URL: http://www.bu.edu/econ/files/2019/05/GOR-4-14-19.pdf
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    References listed on IDEAS

    as
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    Keywords

    Economic Growth; Innovation; Credit Constraints; Convergence; Policy Analysis; Money; Inflation;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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