Stephen R. Yeaple

Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States

We estimate international technology spillovers to US manufacturing firms via imports and foreign direct investment (FDI) between the years 1987-96. In contrast to earlier work, our results suggest that FDI leads to significant productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 14% of productivity growth in US firms between 1987-96. In addition, there is some evidence for imports-related spillovers, but it is weaker than for FDI. The Paper also gives a detailed account of why our study leads to results different from those found in previous work. This analysis indicates that our results are likely to generalize to other countries and periods.

The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment

Abstract The behavior of many multinational enterprises is not well described by existing models of foreign direct investment (FDI). Firms often follow strategies that involve vertical integration in some countries and horizontal integration in others, a strategy known as complex integration. This paper presents a three-country model that is used to analyze why firms might follow a strategy of complex integration. My analysis reveals that complex integration strategies create complementarities between potential host countries that have important implications for the structure of FDI. The analysis also shows that falling transport cost between countries may increase the importance of complex integration strategies.

The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment

This paper reports the results of an empirical study of the industry and country determinants of U.S. outward foreign direct investment (FDI). These results contribute to the literature in two dimensions. First, they demonstrate that the structure of U.S. FDI reflects an interaction between country skilled-labor abundance and industry skilled-labor intensities that is consistent with comparative advantage. Second, they confirm the results of early studies that market access plays an important role in the structure of U.S. FDI. Together these results paint a broad picture of the structure of U.S. FDI that casts light on the predictions of the theory of multinational enterprise.

Globalization and Endogenous Firm Scope

We develop a theory of multiproduct firms to analyze the effects of globalization on the distributions of firm size, scope, and productivity. Our model explains two puzzles. First, it explains the well-known size-discount puzzle: large firms have lower values of Tobin’s Q than small firms. Second, it explains the globalization-skewness puzzle documented in the empirical part of our paper: a multilateral reduction in trade costs leads to a flattening of the size distribution of firms. In our model, globalization not only affects the distribution of observed productivities but also productivity at the firm level.

Multinational Firms and the Structure of International Trade

This chapter reviews the state of the international trade literature on multinational firms. This literature addresses three main questions. First, why do some firms operate in more than one country while others do not? Second, what determines in which countries production facilities are located? Finally, why do firms own foreign facilities rather than simply contract with local producers or distributors? We organize our exposition of the trade literature on multinational firms around the workhorse monopolistic competition model with constant-elasticity-of-substitution (CES) preferences. On the theoretical side, we review alternative ways to introduce multinational activity into this unifying framework, illustrating some key mechanisms emphasized in the literature. On the empirical side, we discuss the key studies and provide updated empirical results and further robustness tests using new sources of data.

International Productivity Differences, Infrastructure, and Comparative Advantage

This paper provides an empirical analysis of the effect of infrastructure provision on industry-level productivity and international specialization, as suggested by Clarida and Findlay’s (1992) model. We calculate total factor productivity (TFP) for 18 developed and developing countries and 10 manufacturing industries, and study the effects of supplies of roads, telecommunications and electric power on international variations in sectoral TFP, i.e. comparative advantage. We also examine the effects of infrastructure on the sectoral composition of output across countries. Using a three-stage least-squares estimation strategy to control for endogeneity of infrastructure provision, we find that infrastructure, especially roads, helps to explain patterns of comparative advantage and international specialization.

Global Production and Trade in the Knowledge Economy

This paper presents and tests a new model of multinational firms to explain a rich array of multinational behavior. In contrast to most approaches, here the multinational faces costs to transferring its know-how that are increasing in technological complexity. Costly technology transfer gives rise to increasing marginal costs of serving foreign markets, which explains why multinational firms are often much more successful in their home market compared to foreign markets. The model has several key predictions. First, as transport costs between multinational parent and affiliate increase, firms with complex production technologies find it relatively difficult to substitute local production for imports from the parent, because complex technologies are relatively costly to transfer. Second, the activity of affiliates with complex technologies declines relatively strongly as transport costs from the home market increase, both at the intensive and the extensive margin. We also show that as transport costs from the home market increase, affiliates concentrate their imports from the parent on intermediates that are technologically more complex. We test these hypotheses by employing information on the activities of individual multinational firms, on the nature of intra-firm trade at the product level, and on the skills required for occupations with different complexity. The empirical analysis finds strong evidence in support of the model by confirming all four hypotheses. The analysis shows that accounting for costly technology transfer within multinational firms is important for explaining the structure of trade and multinational production.

The Production of Cognitive and Non-cognitive Human Capital in the Global Economy

A country’s welfare depends on its ability to accumulate cognitive and non-cognitive human capital. In this paper, we model the productions of cognitive and non-cognitive human capital in general equilibrium. We use revealed comparative advantage to infer countries’ non-cognitive and cognitive productivities without a direct measure for the non-cognitive dimension. Our model also delivers analytical expressions for how non- cognitive and cognitive productivities can be aggregated into a single human-capital quality index, or HCQI, and how HCQI relates to output per worker. Our model allows us to obtain the values of non-cognitive and cognitive productivities and HCQI, using publically available data for a sample of mostly high-income countries. We find that: 1. many countries with low test scores have high non-cognitive productivities; 2. the hard-to-measure non-cognitive human capital is important for HCQI, and HCQI is important for output per worker; 3. the trade-o¤ between cognitive- and non-cognitive productivities can be visualized and analyzed using an iso-HCQI curve: e.g. uneven cognitive and non-cognitive productivities tend to lower HCQI; 4. this trade-o¤ can be quantified, and has policy implications: e.g. excessive attention to test scores may decrease aggregate output; 5. international trade matters, theoretically, for HCQI, because the gains from trade help to compensate a country for uneven productivity across human capital types: e.g. the iso-HCQI curve would have a very different shape under free trade.