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Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. The scope for trade linkages to generate cross-country spillovers depends on the elasticity of substitution with respect to domestic inputs. Using the 2011 Tōhoku earthquake as an exogenous shock, we structurally estimate production elasticities at the firm level and find greater complementarities in input usage than previously thought. For Japanese affiliates in the United States, output falls roughly one-for-one with declines in imports, consistent with a relationship between imported and domestic inputs that is close to Leontief.

This paper provides a quantitative review of the empirical literature on profit-shifting behaviour of multinational firms. We synthesize the evidence from 27 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for confounding factors by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Back-of-the-envelope calculations suggest that transfer pricing and licensing are the dominant profit-shifting channels. Ce mémoire fournit une revue quantitative de la littérature empirique sur le comportement de déplacement des profits desfirmes plurinationales. On synthétise les résultats de 27 études et on découvre qu’il existe une réponse substantielle des mesures de profit aux différentiels dans les taux d’imposition entre nations. Tenant compte des facteurs confusionnels grâce aux méta-régressions, on prédit une semi-élasticité des impôts des profits avant-taxes desfiliales de l’ordre de 0,8. De plus, on déméle la composante de la réponse fiscale attribuable á la planification financiére de celle attribuable aux prix de cession interne et à la concession de licences. Des calculs préliminaires suggérent que ce sont à les canaux principaux de déplacement des profits.

Most international commerce is carried out by multinational firms, which use their foreign affiliates both to serve the market of the host country and to export to other markets outside the host country. In this article, I examine the determinants of multinational firms’ location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms—that is, they do not allow foreign affiliates of multinationals to export—or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multicountry general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that the fixed costs of foreign investment are large. Second, I calibrate themodel to data on trade and multinational production for twelve European and North American countries. Counterfactual analysis reveals that multinationals play an important role in transmitting technological improvements to foreign countries and that the pending Canada-EU trade and investment agreement could divert a sizable fraction of the production of EU multinationals from the U.S. to Canada.

International joint ventures (IJVs) are an important type of international strategic alliance (ISA) and have been studied by scholars for decades, resulting in a plethora of empirical studies, publications, and reviews, yet an inadequate accumulation of knowledge exists, as a closer look reveals. Much more than providing a summary and critical assessment of past contributions, this paper develops an expansive research agenda based upon a deep understanding of past research and comprehensive frameworks that distill this research. We identify a number of research opportunities that would not only advance IJV research but also closely related literatures and disciplines such as ISAs, theories of the multinational firm, international business research, and strategic management.

This study investigates the determinants of Chinese outward direct investment (ODI) and the extent to which three special explanations (capital market imperfections, special ownership advantages and institutional factors) need to be nested within the general theory of the multinational firm. We test our hypotheses using official Chinese ODI data collected between 1984 and 2001. We find Chinese ODI to be associated with high levels of political risk in, and cultural proximity to, host countries throughout, and with host market size and geographic proximity (1984-1991) and host natural resources endowments (1992-2001). We find strong support for the argument that aspects of the special theory help to explain the behaviour of Chinese multinational enterprises.

The issue of tax-motivated income shifting within multinational firms – or 'base erosion and profit shifting' (BEPS) – has attracted increasing global attention in recent years. This paper provides a survey of the empirical literature on this topic. Its emphasis is on reviewing and elucidating what is known about the magnitude of BEPS. The paper discusses different empirical approaches to identifying income shifting, describes existing data sources, and summarises the findings of the empirical literature. A major theme that emerges from this survey is that in the more recent empirical literature, which uses new and richer sources of data, the estimated magnitude of BEPS is typically much smaller than that found in earlier studies. The paper seeks to provide a framework within which to conceptualise this magnitude and its implications for policy. It concludes by highlighting the importance of existing legal and economic frictions as constraints on BEPS and by discussing possible ways in which future research might model these frictions more precisely.

Income shifting from high-tax to low-tax jurisdictions is considered a primary method of reducing worldwide tax burdens of multinational firms. Current losses also affect income shifting incentives. We extend prior approaches by explicitly considering unprofitable affiliates and test whether the association between losses and tax incentives for unprofitable affiliates deviates from the negative association observed in profitable affiliates. Results suggest that multinational firms alter the distribution of reported profits to take advantage of losses. Our point estimate for profitable affiliates implies that an increase of one standard deviation in the tax incentive, C, of an affiliate with an average return on assets of 13.3 is associated with a lower return on assets of 0.5 percentage points. The same change in tax incentive of an unprofitable affiliate is associated with an increase in its return on assets of approximately 0.7 percentage points, holding assets, labor, productivity, and other factors constant. We further document a larger responsiveness to tax incentives between profitable and unprofitable affiliates in high-tax jurisdictions, consistent with predictions.

This paper analyzes the transfer pricing of multinational firms. Intrafirm prices may systematically deviate from arm’s-length prices for two motives: pricing to market and tax avoidance. Using French firm-level data on arm’s-length and intrafirm export prices, we find that the sensitivity of intrafirm prices to foreign taxes is reinforced once we control for pricing-to-market determinants. Most important, we find no evidence of tax avoidance if we disregard tax haven destinations. Tax avoidance through transfer pricing is economically sizable. The bulk of this loss is driven by the exports of 450 firms to ten tax havens.

This paper uses a rich panel dataset of Spanish manufacturing firms (1990–2006) and a propensity score reweighting estimator to show that multinational firms acquire the most productive domestic firms, which, on acquisition, conduct more product and process innovation (simultaneously adopting new machines and organizational practices) and adopt foreign technologies, leading to higher productivity. We propose a model of endogenous selection and innovation in heterogeneous firms that explains both the observed selection patterns and the innovation decisions. Further, we show in the data that innovation upon acquisition is associated with the increased market scale provided by the parent firm.

This paper critically assesses recent place-based approaches to industrial and regional policy epitomised in the EU’s 2020 ‘smart specialisation’ programme. It suggests that these are a move in the right direction in so far as they acknowledge ‘place’ as a key, constituent part of policymaking. Drawing upon examples from across the world, we emphasise the importance of regions pursuing strategies that allow them to capture—in a sustainable way—a part of the value they help create and co-create with other entities, such as multinational firms and other organisations. This involves policymakers acting as public entrepreneurs, devising and implementing strategies, structures and policies to enable the regional ecosystem and its constituent parts to capture value sustainably. In addition to the extant focus on linkages and embeddedness, a key aspect of this involves the adoption of regional value capture and positioning strategies.