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The Few Leading The Many: Foreign Affiliates and Business Cycle Comovement

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  • Toubal, Farid
  • Kleinert, Jörn
  • Martin, Julien

Abstract

This paper uses micro-data on balance sheets, trade, and the nationality of ownership of firms in France to investigate the effect of foreign multinationals on business cycle comovement. We first show that foreign affiliates, which represent a tiny fraction of all firms, are responsible for a high share of employment, value added, and trade both at the national and at the regional levels. We also show that the distribution of foreign affiliates across French regions differs with the nationality of the parent. We then show that foreign affiliates increase the comovement of activities between their region of location and their country of ownership. We also find that intra-firm trade in intermediate inputs is a significant channel of influence of business cycle comovement. These findings suggest that the international transmission of shocks is partly due to linkages between affiliates and their foreign parents, and that a few multinational companies drive a non-negligible part of business cycle comovement.

Suggested Citation

  • Toubal, Farid & Kleinert, Jörn & Martin, Julien, 2012. "The Few Leading The Many: Foreign Affiliates and Business Cycle Comovement," CEPR Discussion Papers 9129, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9129
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    More about this item

    Keywords

    Granularity; Business cycles; Multinational firms; Intra-firm trade;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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