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The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages

Author

Listed:
  • Alonso Alfaro-Ureña
  • Isabela Manelici
  • Jose P Vasquez
Abstract
We study the effects of becoming a supplier to multinational corporations (MNCs) using tax data tracking firm-to-firm transactions in Costa Rica. Event study estimates reveal that domestic firms experience strong and persistent gains in performance after supplying to a first MNC buyer. Four years after, domestic firms employ 26% more workers and have a 4% to 9% higher total factor productivity (TFP). These effects are unlikely to be explained by demand effects or changes in tax compliance. Moreover, suppliers experience a large drop in their sales to all other buyers except the first MNC buyer in the year of the event, followed by a gradual recovery. The dynamics of adjustment in sales to others suggests that firms face short-run capacity constraints that relax over time. Four years later, the sales to others grow by 20%. Most of this growth comes from the acquisition of new buyers, which tend to be “better buyers” (e.g., larger and with more stable supplier relationships). Finally, we collected survey data from domestic firms and MNCs to provide further insights into the wide-ranging benefits of supplying to MNCs. According to our surveys, these benefits range from better managerial practices to a better reputation.

Suggested Citation

  • Alonso Alfaro-Ureña & Isabela Manelici & Jose P Vasquez, 2022. "The Effects of Joining Multinational Supply Chains: New Evidence from Firm-to-Firm Linkages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1495-1552.
    • Handle: RePEc:oup:qjecon:v:137:y:2022:i:3:p:1495-1552.
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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