Multinational Firms and International Business Cycle Transmission

40 Pages Posted: 31 Aug 2016 Last revised: 23 Jun 2023

See all articles by Javier Cravino

Javier Cravino

University of California, Los Angeles

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2016

Abstract

We investigate how multinational firms contribute to the transmission of shocks across countries using a large multi-country firm-level dataset that contains cross-border ownership information. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10% growth in the sales of the headquarter is associated with a 2% growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10% of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.

Suggested Citation

Cravino, Javier and Levchenko, Andrei A., Multinational Firms and International Business Cycle Transmission (August 2016). NBER Working Paper No. w22498, Available at SSRN: https://ssrn.com/abstract=2832555

Javier Cravino (Contact Author)

University of California, Los Angeles

Box 951477
Los Angeles, CA 90095-1477
United States

Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://alevchenko.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
24
Abstract Views
441
PlumX Metrics