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Multinational Firms' Entry and Productivity: Some Aggregate Implications of Firm-level Heterogeneity

Silvio Contessi

No 2010-043, Working Papers from Federal Reserve Bank of St. Louis

Abstract: 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.

Keywords: International; business; enterprises (search for similar items in EconPapers)
JEL-codes: F21 F23 F41 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-opm
Date: 2010, Revised 2015-08-26
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Related works:
Journal Article: Multinational firms׳ entry and productivity: Some aggregate implications of firm-level heterogeneity (2015) Downloads
Working Paper: Multinational firms' entry and productivity: some aggregate implications of firm-level heterogeneity (2015) Downloads
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