Multinational Expansion in Time and Space

72 Pages Posted: 7 May 2019 Last revised: 5 Jul 2023

See all articles by Stefania Garetto

Stefania Garetto

Boston University

Lindsay Oldenski

Georgetown University

Natalia Ramondo

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2019

Abstract

This paper studies the expansion patterns of the multinational enterprise (MNE) in time and space. Using a long panel of US MNEs, we document that MNE affiliates usually start with sales exclusively to the host market and eventually enter export markets, and that this extensive margin of expansion accounts for most of their sales growth. Informed by these facts, we develop a multi-country quantitative dynamic model of the MNE that features heterogeneity in firm-level productivity, persistent aggregate shocks, and a rich structure of costs that affect MNE expansion. Importantly, MNE affiliates can decouple their locations of production and sales, and endogenously choose to enter or exit the host and the export markets. We introduce a novel compound option formulation that allows us to capture in a tractable way the rich heterogeneity observed in the data, which is necessary for quantitative analysis. Using the calibrated model, our quantitative application to Brexit reveals that the nature of the frictions to MNE activities matters for understanding the reallocation of MNE activity in time and space and for predicting the effects of globalization shocks.

Suggested Citation

Garetto, Stefania and Oldenski, Lindsay and Ramondo, Natalia, Multinational Expansion in Time and Space (May 2019). NBER Working Paper No. w25804, Available at SSRN: https://ssrn.com/abstract=3383303

Stefania Garetto (Contact Author)

Boston University ( email )

270 Bay State Road
Boston, MA 02215
United States

Lindsay Oldenski

Georgetown University ( email )

Washington, DC 20057
United States

Natalia Ramondo

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
14
Abstract Views
309
PlumX Metrics