Events

Economics Seminar

Author:

• Stefania Garetto
  Boston University and CEPR

• Lindsay Oldenski
  Georgetown University

• Natalia Ramondo
  UC-San Diego and NBER

This paper examines how the activities performed by multinational firms change over their
life cycle, with the goal of quantifying the frictions to multinational expansion. Using a long 
panel of U.S. multinational firms, we document that: the ratio of affiliate-to-parent sales grow
very little over the life cycle of the affiliate; affiliates are born specialized in their life-long main
activity, which is overwhelmingly serving the host market of operations; and activities that
start later in life, namely exports, are performed at a low intensity. Informed by these facts,
we propose a quantitative dynamic model of multinational activity that features entry costs
to both multinational activity and affiliate export markets, heterogenous firms, and persistent
aggregate productivity shocks. The model delivers qualitative testable implications that are
consistent with the data. Quantitatively, the calibrated model sheds light on the nature of the
costs of multinational activity.