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Host-Country Financial Development and Multinational Activity

Listed author(s):
  • Kamran Bilir
  • Davin Chor
  • Kalina Manova

This paper evaluates the influence of host-country financial development on the global operations of multinational firms. Using detailed U.S. data, we provide evidence that host-country financial development increases entry by multinational affiliates, while also decreasing affiliate sales in the local market relative to the parent country and third-country destinations. These effects are more pronounced in industries that depend more on external sources of financing. The patterns are consistent with the combination of two effects of financial development: 1) a competition effect that reduces individual affiliates' revenues in the host market due to increased entry by domestic firms, and 2) a financing effect that raises affiliate entry and aggregate sales due to affiliates' improved access to external finance in the host country.

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File URL: http://www.nber.org/papers/w20046.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20046.

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Date of creation: Apr 2014
Handle: RePEc:nbr:nberwo:20046
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  17. repec:oup:qjecon:v:132:y:2017:i:1:p:157-209. is not listed on IDEAS
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