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The Impact of Information and Communication Technology Adoption on Multinational Firm Boundary Decisions

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  • Wenjie Chen
  • Fariha Kamal

Abstract

This paper evaluates the effect of adopting internet-enabled information and communication technology (ICT) adoption on the decision to reorganize production across national borders (foreign boundary decision) by multinational enterprises (MNE). Using a transaction cost framework, we argue that ICT adoption influences foreign boundary decisions by lowering coordination costs both internally and externally for the firm. We propose that the heterogeneity in the technology’s characteristics, namely complexity and the production processes’ degree of codifiability, moderate this influence. Using a difference-in-differences methodology and exploiting the richness of confidential U.S. Census Bureau microdata, we find that overall ICT adoption is positively associated with greater likelihood of in-house production, as measured by increases in intra-firm trade shares. Furthermore, we find that more complex forms of ICT are associated with larger increases in intra-firm trade shares. Finally, our results indicate that MNEs in industries in which production specifications are more easily codified in an electronic format are less likely to engage in intra-firm relative to arms-length trade following ICT adoption.

Suggested Citation

  • Wenjie Chen & Fariha Kamal, 2016. "The Impact of Information and Communication Technology Adoption on Multinational Firm Boundary Decisions," Working Papers 16-01, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:16-01
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    3. Wenqing Wu & Kexin Yu & Chien-Chi Chu & Jie Zhou & Hong Xu & Sang-Bing Tsai, 2018. "Diffusion of Corporate Philanthropy in Social and Political Network Environments: Evidence from China," Sustainability, MDPI, Open Access Journal, vol. 10(6), pages 1-17, June.
    4. Dachs, Bernhard & Kinkel, Steffen & Jäger, Angela, 2019. "Bringing it all back home? Backshoring of manufacturing activities and the adoption of Industry 4.0 technologies," Journal of World Business, Elsevier, vol. 54(6), pages 1-1.
    5. Bruno Casella & Lorenzo Formenti, . "FDI in the digital economy: a shift to asset-light international footprints," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    6. Rubén Jesús Pérez-López & Jesús Everardo Olguín Tiznado & María Mojarro Magaña & Claudia Camargo Wilson & Juan Andrés López Barreras & Jorge Luis García-Alcaraz, 2019. "Information Sharing with ICT in Production Systems and Operational Performance," Sustainability, MDPI, Open Access Journal, vol. 11(13), pages 1-18, July.
    7. Nicole Coviello & Liena Kano & Peter W Liesch, 2017. "Adapting the Uppsala model to a modern world: Macro-context and microfoundations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(9), pages 1151-1164, December.
    8. Cahen, Fernanda & Borini, Felipe Mendes, 2020. "International Digital Competence," Journal of International Management, Elsevier, vol. 26(1).
    9. Werner Hölzl & Susanne Bärenthaler-Sieber & Julia Bock-Schappelwein & Klaus S. Friesenbichler & Agnes Kügler & Andreas Reinstaller & Peter Reschenhofer & Bernhard Dachs & Martin Risak, 2019. "Digitalisation in Austria. State of Play and Reform Needs," WIFO Studies, WIFO, number 61892, November.
    10. Yang, Kaiyuan & Ma, Pengcheng & Cui, Lin, 2021. "Subnational corruption and foreign firms’ performance: Evidence from China," Journal of Business Research, Elsevier, vol. 123(C), pages 106-116.
    11. Liang Chen & Noman Shaheer & Jingtao Yi & Sali Li, 2019. "The international penetration of ibusiness firms: Network effects, liabilities of outsidership and country clout," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(2), pages 172-192, March.

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