Working Paper

Multinational firms' entry and productivity: some aggregate implications of firm-level heterogeneity

Abstract: Despite the microeconomic evidence supporting the superior idiosyncratic productivity of multinational firms (MNFs) and their affiliates, cross-country studies fail to find robust evidence of a positive relationship between foreign direct investment and growth. In order to study the aggregate implications of MNFs entry and production, I develop a dynamic general equilibrium model with firm heterogeneity where MNFs sort according to their own productivity. The entry and production of MNFs contribute to aggregate productivity growth at decreasing rates and affect domestic producers through general equilibrium effects in the labor market. I argue that the heterogeneous composition of the population of affiliates can help explain the conflicting evidence on the impact of foreign direct investment on growth.

JEL Classification: F21; F23; F41; F42;

https://doi.org/10.24149/gwp248

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2015-09-01

Number: 248

Note: Published as: Contessi, Silvio (2015), "Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity," Journal of Economic Dynamics and Control 61: 61-80.