
Abstract
Recent literature on multinational firms has stressed the importance of low productivity as a barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision (the extensive margin) and foreign affiliate sales (the intensive margin). We provide empirical evidence based on a detailed dataset of German multinationals which contains information on parent-level and affiliate-level financial constraints as well as on the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by large firms. Financial constraints at the parent level matter for the extensive, but less so for the intensive margin. For the intensive margin, financial constraints at the affiliate level are relatively more important.
Item Type: | Paper |
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Keywords: | multinational firms, heterogeneity, productivity, financial constraints |
Faculties: | Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B7 - Globalisierung und der Anstieg der Vorstandsbezüge Economics Economics > Chairs > Seminar for Comparative Economics |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | F2, G2 |
URN: | urn:nbn:de:bvb:19-epub-13280-4 |
Language: | English |
Item ID: | 13280 |
Date Deposited: | 10. Jul 2012, 13:07 |
Last Modified: | 04. Nov 2020, 12:53 |