Host-Country Financial Development and Multinational Activity

Kamran Bilir, Davin Chor, Kalina Manova

NBER Working Paper No. 20046
Issued in April 2014
NBER Program(s):   IFM   ITI

This paper evaluates the influence of host-country financial development on the global operations of multinational firms. Using detailed U.S. data, we provide evidence that host-country financial development increases entry by multinational affiliates, while also decreasing affiliate sales in the local market relative to the parent country and third-country destinations. These effects are more pronounced in industries that depend more on external sources of financing. The patterns are consistent with the combination of two effects of financial development: 1) a competition effect that reduces affiliate revenues in the host market due to increased entry by domestic firms, and 2) a financing effect that encourages affiliate entry and activity in the host country due to affiliates’ improved access to external finance.

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This paper was revised on December 1, 2016

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20046

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