Essays on Multinational Firms: Strategic Trade Policy, Exporting, and Productivity

Abstract

Chapter 1 explores the possibility of strategic use of antidumping duties by multinational firms. There is evidence that the subsidiaries of some multinational firms file antidumping protection from their own parents or remain inactive during the investigation period while other firms pursue protection. Using a duopoly model, I analyze this phenomenon in a two-stage capacity-constrained price competition framework. I find that in most cases, the foreign multinational corporations benefit from the antidumping duties on themselves, which deter them from exporting, thus, reduce competition in the foreign market. In some cases, the outcome is ambiguous and is determined by the costs of exporting as well as the capacity decisions of the firms.

Chapter 2 studies strategic import policy in a model of capacity-constrained price competition. I consider an environment of two firms, a domestic firm and a foreign multinational firm, both producing in the domestic country. The multinational firm is able to support its local production with exports from its parent plant. Imposition of a tariff by the domestic government improves the profits of the domestic firm as in standard models of strategic trade policy, confirming the profit-shifting effects of protectionist policies. However, when initial trade costs are low enough, the multinational firm also benefits from the tariff imposition, making the net change in total domestic welfare negative. When trade is costly and the degree of differentiation between firms' products is high enough, the gain in the domestic firm's profits outweighs the loss in the consumer surplus, resulting in a net welfare gain for the domestic country.

Chapter 3 adds to the empirical evidence on the direction of causality between exporting and firm performance by using firm-level data from Indian manufacturing firms. Recent empirical studies have documented the superior characteristics of exporting firms relative to non-exporters using micro-level data. There are two main hypotheses proposed to explain this gap. According to the self-selection hypothesis, it is the better firms that become exporters as these firms have a greater chance of covering the high fixed costs of serving foreign markets. The learning-by-exporting hypothesis suggests that entering export markets can result in post-entry productivity improvements. I find clear evidence on self-selection. To test the learning-by-exporting hypothesis, I use propensity score matching. Although the results indicate that there some benefits to exporting firms in the form of higher sales and capital, I do not detect any major further productivity improvements following entry into export markets.