Multinational firms and host country market structure: A review of empirical literature

Abstract

Abstract:The role of multinational firms in the world economy is widely recognized. Multinationals' activities produce various effects in the host countries, particularly in areas such as: economic growth, technology and innovatory capacity, employment, market structure, performance and business practices, among others. In this paper we address the impact of multinationals on host country market structure. Although research in this area started a few decades ago, to our knowledge there is still no literature survey on the subject. So, through reviewing existing empirical literature we intend to shed light on the main limitations of existing studies and highlight possible avenues for future research. Our main conclusion is that the majority of studies focus on samples of manufacturing industries/firms, neglecting the service sector, despite its importance. Therefore, future research should be directed to the service sector.Additionally, future studies should explore the possibility of bidirectional causality between the presence of multinationals and the level of industry concentration. Furthermore, studies concerning the impact of foreign presence on entry, exit and survival of host country firms must use more recent data and taking into account other control variables that may affect the exit rate. Finally, future work should take into account the mode of foreign firm establishment in the host country.

Group subsidiaries, tax minimization and offshore financial centres: Mapping organizational structures to establish the ‘in-betweener’ advantage

“…The system of international business taxation incentivizes management to apportion as many taxable activities to low-tax jurisdictions as possible. They do so by rerouting passive investments through their low-tax jurisdiction subsidiaries (Birkinshaw and Morrison, 1995;Dowd et al, 2017;Forte, 2016).…”

Foreign and multinational ownership impact on firm exit: A sectoral analysis

“…Multinational corporations (MNCs) play an important role in the host country's wealth (Forte, 2016). According to the United Nations Conference on Trade and Development (UNCTAD, 2012), the exports of foreign affiliates accounted for one‐third of the world's exports and their value added represented 10% of the world's growth domestic product in 2011.…”

“…This study makes several contributions to the existing body of knowledge. First, it analyzes the effects of foreign and multinational ownership simultaneously on firm exit, which has generated conflicting results; second, it addresses the call by Forte (2016) for studies to use more recent data (most studies use samples pre 2010) to reflect current business environments; and third, it explores foreign and multinational ownership intricacies in both manufacturing and service sectors of activity, on which studies are scarce to date (Forte, 2016; Silva & Moreira, 2019).…”

Greenfield FDI, cross-border M&As, and government size

“…7 Using the terminology of Alfaro and Charlton (2009), this captures the inter-industry type of vertical FDI at least tentatively, rather than the intra-industry type of vertical FDI that figures more prominently in developed host countries. 8 In a similar vein, Forte (2016) argues that the previous literature typically does not take into account the mode of entry of FDI even though it is likely to affect the level of competition and, thus, economic insecurity in the host country. Taking a different perspective, Chakrabarti et al (2016) focus on M&As in vertically related industries and the role of local competition in creating incentives to engage in such M&As.…”

“…First of all, greenfield FDI appears to be more volatile than M&As. Burger and Ianchovichina (2014) Second, greenfield FDI is expected to increase economic insecurity in the host country by adding more strongly to competitive pressure in local product markets than M&As (UNCTAD, 2000;Forte, 2016). Greenfield FDI creates new assets and adds to local production capacity.…”