2022
DOI: 10.1093/qje/qjac006
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The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages

Abstract: We study the effects of becoming a supplier to multinational corporations (MNCs) using tax data tracking firm-to-firm transactions in Costa Rica. Event study estimates reveal that domestic firms experience strong and persistent gains in performance after supplying to a first MNC buyer. Four years after, domestic firms employ 26% more workers and have a 4 to 9% higher total factor productivity (TFP). These effects are unlikely to be explained by demand effects or changes in tax compliance. Moreover, suppliers e… Show more

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Cited by 82 publications
(15 citation statements)
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“…In the case of both backward and forward FDI linkages, exposure to FDI is associated with higher levels of (labour) productivity, both in manufacturing and in the service sectors. This is consistent with the literature, which finds that the productivity effects of FDI are likely to manifest especially in cases in which foreign firms can establish production linkages with domestic firms (e.g., Alfano‐Urena et al, 2022; Newman et al, 2015). Although data constraints make it impossible to account for these linkages directly―a feature shared with most of the empirical literature―approximating relationships by considering geographical proximity and sectoral linkages is an improvement with respect to country–sector‐level analyses.…”
Section: Robustness and Extensionssupporting
confidence: 90%
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“…In the case of both backward and forward FDI linkages, exposure to FDI is associated with higher levels of (labour) productivity, both in manufacturing and in the service sectors. This is consistent with the literature, which finds that the productivity effects of FDI are likely to manifest especially in cases in which foreign firms can establish production linkages with domestic firms (e.g., Alfano‐Urena et al, 2022; Newman et al, 2015). Although data constraints make it impossible to account for these linkages directly―a feature shared with most of the empirical literature―approximating relationships by considering geographical proximity and sectoral linkages is an improvement with respect to country–sector‐level analyses.…”
Section: Robustness and Extensionssupporting
confidence: 90%
“…Our baseline specification does not account for the differential timing of entry of FDI projects, under the assumption that the implications of exposure to one or more FDI projects in related (relevant) sectors could be long lasting (as found recently by Alfano‐Urena et al, 2022). We assess whether our results continue to obtain if we limit the time span of FDI exposure to 5 years in Table A6.…”
Section: Robustness and Extensionsmentioning
confidence: 99%
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“…Existing empirical studies use matched employer-employee data (Balsvik, 2010;Poole, 2012). Similarly, to capture linkages with domestic firms, more recent studies make use of data on supplier-buyer relationships or transaction-level data (Alfaro-Ureña et al, 2022). Unfortunately, such detailed and disaggregated data is not available for many developing countries.…”
Section: Introductionmentioning
confidence: 99%
“… Empirical studies include Verhoogen (2008), Lileeva and Trefler (2010), Bustos (2011), Aw, Roberts, and Xu (2011), Ferraz, Finan, and Szerman (2015), Atkin, Khandelwal, and Osman (2017), McCaig and Pavcnik (2018), and Alfaro‐Urena, Manelici, and Vasquez (2022). …”
mentioning
confidence: 99%