Multinational Networks and Trade Participation

We provide a novel explanation for the dominance of multinational corporations (MNCs) in international trade: MNC affiliates face lower trade frictions in countries that belong to their parental network. Combining rich administrative data from Belgium with data on MNCs’ global affiliate networks, we estimate event studies in a three-dimensional panel with staggered treatment effects, exploiting variation within multinational affiliates in their ownership status and across affiliates in the geographical structure of their parental network. We show that firms acquired by an MNC are more likely to start exporting to and importing from countries that belong—or that are exogenously added—to their parental network. We provide evidence suggesting that the effects increase with knowledge flows within the MNC hierarchy and extend beyond the boundaries of the multinational. In a model of firms’ export and import choices, firm-country-year-level gravity regressions isolate “MNC network effects†from other channels through which multinational ownership can affect firms’ trade participation. Combining the structure of the model with our empirical estimates, we find that MNC network effects have a large impact on new affiliates’ sales and employment growth.