English, Article, Journal or magazine article edition: Host Country Financial Development and MNC Activity Davin Chor

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Bookmark: http://trove.nla.gov.au/version/6237
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Host Country Financial Development and MNC Activity
Author
  • Davin Chor
Physical Description
  • preprint
Notes
  • We present evidence that the level of financial development in FDI recipient countries systematically affects the spatial distribution of multinational corporations' (MNCs) sales. Using detailed proprietary survey data collected by the Bureau of Economic Analysis (BEA) on US multinationalactivity abroad, we find that stronger financial development in the host country has a negative effect on the share of MNC affiliate sales that remain in the host country, indicating a reduced propensity towards horizontal FDI. Conversely, the share of affiliate sales that is re-exported to third-country destinations increases, suggesting an increased propensity towards export-platform FDI. We provide a three-country model with heterogenous firms that rationalizes these observations: More financially developed host countries foster entry by domestic firms, making the local market more competitive for MNC products. This leads MNCs to orient their affiliates away from servicing the local market towards third-country markets instead.
  • Credit constraints, horizontal FDI, vertical FDI, export-platform FDI, heterogenous ¯rms.
  • RePEc:siu:wpaper:12-2008
Language
  • English
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