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

Cathy Bao () and Maggie Chen

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

Abstract: How do domestic Örms respond to the threat of foreign competition? This paper quantifies the threat of competition from foreign multinational firms by exploring investment news that appear in over 35,000 newspapers, trade presses, magazines, newswires, and other forms of media in 200 countries. The analysis shows that, on average, domestic Örms respond to foreign multinational threats by increasing productivity, R&D, labor training, patent applications, and advertising expense and changing product composition. However, the response exhibits substantial heterogeneity oss industries and Örms: industries with "neck-to-neck" competition are more likely to upgrade productivity; within each industry, the right tail of the domestic productivity distribution responds by increasing innovation while the left tail escapes competition threats by dropping threatened products. Moreover, the degree of response increases significantly with the size of the threat, the influence of the news, the amount of information embedded in the news--on, for example, the credibility of the threat, and the number of news in downstream industries. The main findings are robust to placebo tests and IV analyses that explore detailed and unique characteristics--such as the publishing timing and location, the primary consumers, and the substance--of each news.

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: 55 pages
Date: 2014
New Economics Papers: this item is included in nep-com, nep-cse, nep-ino and nep-int
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http://www.gwu.edu/~iiep/assets/docs/papers/2014WP/ChenIIEPWP201413.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 (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2014-13

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