Publications
- Multinational Firms, FDI Flows and Imperfect Capital Markets
- Download: PDF 396.95 KB
- by Antràs, Pol; Desai, Mihir A.; Foley, C. Fritz
- This paper examines how costly
nancial contracting and weak investor protection inuence the cross-border operational,
nancing and investment decisions of
rms. We develop a model in which product developers can play a useful role in
monitoring the deployment of their technology abroad. The analysis demonstrates
that when
rms want to exploit technologies abroad, multinational
rm (MNC) activity and foreign direct investment (FDI) ows arise endogenously when monitoring
is nonveri
able and
nancial frictions exist. The mechanism generating MNC activity is not the risk of technological expropriation by local partners but the demands
of external funders who require MNC participation to ensure value maximization by
local entrepreneurs. The model demonstrates that weak investor protections limit
the scale of multinational
rm activity, increase the reliance on FDI ows and alter
the decision to deploy technology through FDI as opposed to arms length licensing.
Several distinctive predictions for the impact of weak investor protection on MNC
activity and FDI ows are tested and con
rmed using
rm-level data.
- Publication Type: Working Papers
- Published Date: November 1, 2007
- Field of Interest: International Economics
- Antràs, Pol, Mihir Desai, and C. Fritz Foley. "Multinational Firms, FDI Flows and Imperfect Capital Markets." November 2007.
