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Selection and Market Reallocation: Productivity Gains from Multinational Production

Laura Alfaro and Maggie Chen

No 12-111, Harvard Business School Working Papers from Harvard Business School

Abstract: Assessing productivity gains from multinational production has been a vital topic of economic research and policy debate. Positive productivity gains are often attributed to productivity spillovers; however, an alternative, much less emphasized channel is selection and market reallocation whereby competition leads to factor reallocation both within and between domestic firms and exits of the least productive firms. We investigate the roles of these different mechanisms in determining aggregate productivity gains using a unifying framework that explores the mechanisms' distinct predictions on the distributions of domestic firms: Within-firm productivity improvement shifts the productivity distribution rightward while selection and market reallocation shifts the revenue and employment distributions leftward and raises left truncations. Using a rich cross-country firm panel dataset, we find significant evidence of both mechanisms and effects of competition in product, technology and labor space. However, selection and market reallocation account for the majority of aggregate productivity gains, suggesting that ignoring this channel could lead to substantial bias in understanding the nature of productivity gains from multinational production.

Keywords: Productivity gains; multinational production; selection; market reallocation; and within-firm productivity (search for similar items in EconPapers)
JEL-codes: F2 O1 O4 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2012-06, Revised 2016-11
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Selection and Market Reallocation: Productivity Gains from Multinational Production (2018) Downloads
Working Paper: Selection and Market Reallocation: Productivity Gains from Multinational Production (2012) Downloads
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