Abstract

http://ssrn.com/abstract=2101302
 
 

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Selection and Market Reallocation: Productivity Gains from Multinational Production


Laura Alfaro


Harvard University - Business, Government and the International Economy Unit

Maggie Xiaoyang Chen


George Washington University

April 7, 2015

Harvard Business School BGIE Unit Working Paper No. 12-111

Abstract:     
Assessing the productivity gains from multinational production has been a vital topic of economic research. Positive aggregate productivity gains are often attributed to within-firm productivity improvement; however, an alternative, less emphasized explanation is between-firm selection and market reallocation, whereby competition from multinationals leads to factor reallocation and the survival of only the most productive domestic firms. We investigate the roles of the two different mechanisms in determining the aggregate productivity gains by exploring their distinct predictions on the distributions of domestic firms: within-firm productivity improvement shifts the productivity and the revenue distributions rightward while between-fim selection and market reallocation raise the left truncation of the distributions and shift revenue leftward. Using a rich cross-country firm-level panel dataset, we find significant evidence of both mechanisms, but between-firm selection and market reallocation accounts for the majority of aggregate productivity gains, suggesting that ignoring this channel could lead to substantial bias in understanding the nature of gains from multinational production.

Number of Pages in PDF File: 49

Keywords: Productivity gains, multinational production, selection, market reallocation, and within-firm productivity

JEL Classification: F2, O1, O4


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Date posted: July 5, 2012 ; Last revised: April 8, 2015

Suggested Citation

Alfaro, Laura and Chen, Maggie Xiaoyang, Selection and Market Reallocation: Productivity Gains from Multinational Production (April 7, 2015). Harvard Business School BGIE Unit Working Paper No. 12-111. Available at SSRN: http://ssrn.com/abstract=2101302 or http://dx.doi.org/10.2139/ssrn.2101302

Contact Information

Laura Alfaro (Contact Author)
Harvard University - Business, Government and the International Economy Unit ( email )
Cambridge, MA 02138
United States
Maggie Xiaoyang Chen
George Washington University ( email )
710 21st Street NW
Washington, DC 20052
United States
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