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Multinational Firms and International Business Cycle Transmission

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  • Cravino, Javier
  • Levchenko, Andrei A.

Abstract

We investigate how multinational firms contribute to the transmission of shocks across countries using a large multi-country firm-level dataset that contains cross-border ownership information. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10 % growth in the sales of the headquarter is associated with a 2 % growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10 % of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.

Suggested Citation

  • Cravino, Javier & Levchenko, Andrei A., 2016. "Multinational Firms and International Business Cycle Transmission," CEPR Discussion Papers 11454, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11454
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    Cited by:

    1. Armando Rungi & Davide Del Prete, 2017. "The ‘Smile Curve’: where Value is Added along Supply Chains," Development Working Papers 428, Centro Studi Luca d'Agliano, University of Milano, revised 10 Apr 2017.
    2. Julian di Giovanni & Andrei A. Levchenko & Isabelle Mejean, 2018. "The Micro Origins of International Business-Cycle Comovement," American Economic Review, American Economic Association, vol. 108(1), pages 82-108, January.
    3. repec:aea:jeclit:v:56:y:2018:i:2:p:565-619 is not listed on IDEAS
    4. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    5. Laura Gianfagna & Armando Rungi, 2017. "Does corporate control matter to financial volatility?," Working Papers 09/2017, IMT Institute for Advanced Studies Lucca, revised Nov 2017.
    6. Alviarez, Vanessa & Cravino, Javier & Levchenko, Andrei A., 2017. "The growth of multinational firms in the Great Recession," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 50-64.
    7. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2015. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake," 2015 Meeting Papers 383, Society for Economic Dynamics.
    8. Eppinger, Peter S. & Kukharskyy, Bohdan, 2017. "Contracting institutions and firm boundaries," University of Tuebingen Working Papers in Economics and Finance 100, University of Tuebingen, Faculty of Economics and Social Sciences.
    9. Stefano Federico, 2016. "How does multinational production affect the measurement of competitiveness?," Questioni di Economia e Finanza (Occasional Papers) 301, Bank of Italy, Economic Research and International Relations Area.
    10. Akhtaruzzaman, Md & Shamsuddin, Abul, 2016. "International contagion through financial versus non-financial firms," Economic Modelling, Elsevier, vol. 59(C), pages 143-163.
    11. FUJII Daisuke, 2016. "Shock Propagations in Granular Networks," Discussion papers 16057, Research Institute of Economy, Trade and Industry (RIETI).
    12. OKUBO Toshihiro & Kirill BORUSYAK, 2016. "Intra-Firm Linkages in Multi-Segment Firms: Evidence from the Japanese manufacturing sector," Discussion papers 16001, Research Institute of Economy, Trade and Industry (RIETI).
    13. Sly, Nicholas & Weber, Caroline, 2015. "Global tax policy and the synchronization of business cycles," Research Working Paper RWP 15-7, Federal Reserve Bank of Kansas City.
    14. repec:eee:ecolet:v:163:y:2018:i:c:p:95-97 is not listed on IDEAS
    15. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2016. "Multinationals, Offshoring and the Decline of U.S. Manufacturing," 2016 Meeting Papers 584, Society for Economic Dynamics.
    16. Armando Rungi & Davide Del Prete, 2017. "The 'Smile Curve': where Value is Added along Supply Chains," Working Papers 05/2017, IMT Institute for Advanced Studies Lucca, revised Mar 2017.
    17. FUJII Daisuke & SAITO Yukiko & SENGA Tatsuro, 2017. "The Dynamics of Inter-firm Networks and Firm Growth," Discussion papers 17110, Research Institute of Economy, Trade and Industry (RIETI).
    18. Del Prete, Davide & Rungi, Armando, 2017. "Organizing the global value chain: A firm-level test," Journal of International Economics, Elsevier, vol. 109(C), pages 16-30.

    More about this item

    Keywords

    international business cycle comovement; multinational firms;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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