Federal Reserve Bank of St. Louis
Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity
Despite the microeconomic evidence supporting the superior idiosyncratic productivity of multinational firms (MFN) 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 MNF entry and production, I develop a Dynamic Stochastic General Equilibrium model with firm heterogeneity where MNF sort according to their own productivity. Entry and production of MNF contribute to aggregate productivity growth at decreasing rates over time but potentially crowd out domestic producers due to increased product and factor market competition. I compare the aggregate benefit of productivity contributions with the cost of crowding out and argue that composition and crowding-out effects can help explain the conflicting evidence on the impact of Foreign Direct Investment on growth.
Cite this item
Silvio Contessi, Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity, Federal Reserve Bank of St. Louis, Working Papers 2010-043, 2010, revised 26 Aug 2015.
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
Keywords: International; business; enterprises
This item with handle RePEc:fip:fedlwp:2010-043
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