Foreign Firms, Distribution of Income, and the Welfare of Developing Countries
I construct a tractable model to investigate the impact of the presence of foreign firms in economies where there exist financial frictions. The cross-country implications of the model are consistent with two facts that I document using plant-level data: (i) foreign firms enter more in economies where domestic entrepreneurs are more financially constrained. (ii) the impact of foreign firms in the plantsâ€™ size distribution of the host country is larger in countries where domestic entrepreneurs are more financially constrained. After calibrating the model to account quantitatively for these facts, I use it to evaluate a decrease of barriers to foreign entry. I find that welfare increase only in economies with sufficiently high level of labor income share.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
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