Multinational Firms and International Business Cycle Transmission

Javier Cravino and Andrei Levchenko

No 643, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: We investigate how multinational firms contribute to the transmission of shocks across countries using a large firm-level dataset that contains ownership information for 8 million firms in 34 countries. We use these data to document two novel empirical patterns. First, foreign affiliate and headquarter sales exhibit strong positive comovement: a 10% growth in the sales of the headquarter is associated with a 2% growth in the sales of the affiliate. Second, shocks to the source country account for a significant fraction of the variation in sales growth at the source-destination level. We propose a parsimonious quantitative model to interpret these findings and to evaluate the role of multinational firms for international business cycle transmission. For the typical country, the impact of foreign shocks transmitted by all foreign multinationals combined is non-negligible, accounting for about 10% of aggregate productivity shocks. On the other hand, since bilateral multinational production shares are small, interdependence between most individual country pairs is minimal. Our results do reveal substantial heterogeneity in the strength of this mechanism, with the most integrated countries significantly more affected by foreign shocks.

Keywords: international business cycle comovement; multinational firms (search for similar items in EconPapers)
JEL-codes: F23 F44 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2015-06
New Economics Papers: this item is included in nep-bec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r643.pdf

Related works:
Journal Article: Multinational Firms and International Business Cycle Transmission (2017)
Working Paper: Multinational Firms and International Business Cycle Transmission (2016)
Working Paper: Multinational Firms and International Business Cycle Transmission (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:643

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