The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages

152 Pages Posted: 24 May 2019 Last revised: 2 Jan 2021

See all articles by Alonso Alfaro-Urena

Alonso Alfaro-Urena

Central Bank of Costa Rica

Isabela Manelici

Princeton University, Department of Economics

Jose P. Vasquez

Princeton University - Department of Economics

Date Written: December 1, 2020

Abstract

We study the effects of becoming a supplier to multinational corporations (MNCs) using tax data tracking firm-to-firm transactions in Costa Rica. Event-study estimates reveal that domestic firms experience strong and persistent gains in performance after supplying to a first MNC buyer. Four years after, domestic firms employ 26% more workers and have a 4 to 9% higher total factor productivity (TFP). These effects are unlikely to be explained by demand effects or changes in tax compliance. Moreover, suppliers experience a large drop in their sales to all other buyers except the first MNC buyer in the year of the event, followed by a gradual recovery. The dynamics of adjustment in sales to others suggests that firms face short-run capacity constraints that relax over time. Four years later, the sales to others grow by 20%. Most of this growth comes from the acquisition of new buyers, which tend to be “better buyers” (e.g., larger and with more stable supplier relationships). Finally, surveys of domestic firms and MNCs provide further insights into the wide-ranging benefits of supplying to MNCs. According to our surveys, these benefits range from better managerial practices to a better reputation.

JEL Classification: F14, F23, F61, O12, D22, D24.

Suggested Citation

Alfaro-Urena, Alonso and Manelici, Isabela and Vasquez, Jose P., The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3376129 or http://dx.doi.org/10.2139/ssrn.3376129

Alonso Alfaro-Urena

Central Bank of Costa Rica

Apartado Postal 10058
1000, San Jose
Costa Rica

Isabela Manelici (Contact Author)

Princeton University, Department of Economics ( email )

Princeton, NJ
United States

HOME PAGE: http://https://www.isabelamanelici.com/

Jose P. Vasquez

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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