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The effects of joining multinational supply chains: new evidence from firm-to-firm linkages

Alonso Alfaro-Ureña, Isabela Manelici and Jose Vasquez Carvajal

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 experience a large drop in their sales to all other buyers except the first MNC buyer in the year of the event, followed by a gradual recovery. The dynamics of adjustment in sales to others suggests that firms face short-run capacity constraints that relax over time. Four years later, the sales to others grow by 20%. Most of this growth comes from the acquisition of new buyers, which tend to be “better buyers” (e.g., larger and with more stable supplier relationships). Finally, we collected survey data from domestic firms and MNCs to provide further insights into the wide-ranging benefits of supplying to MNCs. According to our surveys, these benefits range from better managerial practices to a better reputation.

JEL-codes: D24 F14 F23 O12 (search for similar items in EconPapers)
Date: 2021-11-16
New Economics Papers: this item is included in nep-bec, nep-eff, nep-int and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Published in Quarterly Journal of Economics, 16, November, 2021. ISSN: 0033-5533

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Journal Article: The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages (2022) Downloads
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