Market reallocation and knowledge spillover
Subtitle: the gains from multinational production
By: Laura Alfaro, Maggie X. Chen
Contributors: Chen, Maggie Xiaoyang; Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 12-111; Working paper (Harvard Business School) -- 12-111
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston]
Language: eng
Number of pages: 47
Work titles: Selection, reallocation, and spillover
Description: Quantifying the gains from multinational production has been a vital topic of economic research. Positive productivity gains are often attributed to knowledge spillover from multinational to domestic firms. An alternative, less emphasized explanation is market reallocation, whereby competition from multinationals leads to factor reallocation and the survival of only the most productive domestic firms. We develop a model that incorporates both aspects and quantify their relative importance in the gains from multinational production by exploring their distinct predictions for domestic distributions of productivity and revenue. We show that knowledge spillover shifts both distributions rightward while market reallocation raises the left truncation of the distributions and shifts revenue leftward. Using a rich firm-level panel dataset that spans 60 countries, we find that both market reallocation and knowledge spillover are significant sources of productivity gain. Ignoring the role of market reallocation can lead to significant bias in understanding the nature of gains from multinational production.
Notes: "June 2012. (Revised June 2013.)"--Publisher's Web site.

Revision of Selection, reallocation, and spillover: identifying the sources of gains from multinational production.

Includes bibliographical references (pages 36-40).