Why Did US Firms Change Since the Early-2000s? The Mass-Multinationalization Implication of Aggregate Fluctuation

Abstract

Firms rapidly transform as they become multinational enterprises(MNEs). The sharp firm-level changes spilled over to the aggregate corporate sector as an unusually large number of firms multinationalized in the late-1990s, providing a firm-dynamics foundation for otherwise secular aggregate fluctuation. The mass-multinationalization jointly explains a series of recently raised macro-finance puzzles, including dynamics of (1) investment-q relation, (2) profitability (3) concentration, (4) labor and capital shares, and (5) market power. A surge of incentive of US firms to integrate foreign demand looks to have triggered the mass-multinationalization. The mass-multinationalization provides a novel, straightforward, and action-based rationalization of the joint secular movements, and it does not depend on alternative explanations proposed.

Keywords: mass-multinationalization, MNEs, MNE premia, secular macro-finance movements, q-theory of investment, market power, agglomeration, intangible capital, capital share, labor share, concentration

JEL Classification: D22, D24, D25, E22, E23, E24, E32, F21, F23, F62, G31, G32