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The effects of joining multinational supply chains: new evidence from firm-to-firm linkages

Alfaro-Ureña, Alonso, Manelici, Isabela and Vasquez Carvajal, Jose (2019) The effects of joining multinational supply chains: new evidence from firm-to-firm linkages. . University of Chicago, Chicago, IL.

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Abstract

This paper investigates the effects of becoming a supplier to multinational corporations (MNCs) using administrative data tracking all firm-to-firm transactions in Costa Rica. Event-study estimates reveal that after starting to supply to MNCs, domestic firms experience strong and persistent improvements in performance, including the expansion of their workforce by 26% and gains in standard measures of total factor productivity (TFP) of 6-9% four years after. Moreover, the sales of domestic firms to buyers other than the first MNC buyer grow by 20%, both through a larger number of buyers and larger sales per buyer. We propose a simple model by which TFP and reputation affect the number of buyers, but TFP alone affects sales conditional on buying. We find a model-based increase in TFP of 3% four years after. Finally, we collect survey data from managers in both domestic firms and MNCs for further insights on mechanisms. Our surveys suggest that becoming suppliers to MNCs is transformative for domestic firms, with changes ranging from new managerial practices to better reputation.

Item Type: Monograph (Working Paper)
Official URL: https://bfi.uchicago.edu/working-paper/the-effects...
Additional Information: © 2021 The Authors
Divisions: Management
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms; International Business
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
Date Deposited: 19 Aug 2021 10:27
Last Modified: 19 Aug 2021 10:27
URI: http://eprints.lse.ac.uk/id/eprint/111620

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