Foreign Rivals are Coming to Town: Responding to the Threat of Foreign Multinational Entry

Cathy Bao () and Maggie Chen
Additional contact information
Cathy Bao: University of International Business and Economics

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: This paper quantiÖes the threat of foreign competition by exploring news of foreign multinational investment appearing in over 35,000 newspapers, business presses, magazines, newswires, and other forms of media in 200 countries. Using unique time-variant firm-specic measures of foreign multinational threat, the analysis shows that domestic firms respond to the threats by upgrading productivity, raising innovation, investment and wage rate, and altering product composition. However, the responses exhibit substantial heterogeneity across firms: within each industry, the right tail of the domestic productivity distribution responds by increasing innovation while the left tail escapes competition threats by dropping products, leading to a U-shape relationship between initial productivity and productivity growth. Actual multinational competition, in contrast, leads to product dropping only. These previously unexplored responses to the threat of foreign competition constitute an economically important source of gains from globalization and convey new implications for the timing, evolvement, and form of industrial, trade and investment policies.

Keywords: threat; foreign investment news; and domestic Örm responses (search for similar items in EconPapers)
JEL-codes: D2 F1 F2 L2 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2016
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ino, nep-int and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.gwu.edu/~iiep/assets/docs/papers/2016WP/ChenIIEPWP2016-22.pdf (application/pdf)

Related works:
Journal Article: Foreign Rivals Are Coming to Town: Responding to the Threat of Foreign Multinational Entry (2018)
Working Paper: Foreign Rivals are Coming to Town: Responding to the Threat of Foreign Multinational Entry (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2016-22

Access Statistics for this paper

More papers in Working Papers from The George Washington University, Institute for International Economic Policy Contact information at EDIRC.
Bibliographic data for series maintained by Kyle Renner ().