Real Versus Financial Barriers To Multinational Activity
Source: University of Munich
Recent literature on multinational firms has stressed the importance of low productivity as a barrier to the cross-border expansion of firms. However, firms typically also need external finance to finance the costs of market entry. In addition to productivity-related, real barriers, financial constraints may thus restrict market entry. Building on a model of multinational firms facing real and financial barriers to exports and FDI, the authors provide empirical evidence on the importance of these barriers. They find that, in addition to productivity, financial factors at the affiliate and at the parent level affect firms' foreign activities, both along the intensive and the extensive margin.