Essays on Multinationals and International Spillovers.

Abstract

The essays in this dissertation examine the causes and consequences of international spillovers and globalization, with a focus on the role of multinational firms. Chapter 1, joint with Christoph E. Boehm and Aaron Flaaen, highlights the important role played by U.S. owned multinationals in the decline of U.S. manufacturing, using a new microdata panel from 1993-2011 augmented with multinational identifiers and transactions level trade. These multinationals are responsible for both 41% of the manufacturing employment decline and the majority of input imports over this period. A structural framework establishes that the supply-chain fragmentation associated with the imports of intermediates has been substituting for domestic employment. Our estimates imply that approximately half the observed employment decline can be attributed to the foreign sourcing of inputs by multinationals. Chapter 2, also with Christoph E. Boehm and Aaron Flaaen, changes focus to a cause of international spillovers -- the inflexible supply chains of multinationals. Using novel firm-level microdata and leveraging a natural experiment – the 2011 Tohoku Earthquake --, this paper demonstrates that the substantial intermediate input linkages displayed by foreign multinational affiliates in the U.S. with their source country are a source of the international transmission of shocks. The scope for these linkages to generate cross-country spillovers depends on the elasticity of substitution with respect to other inputs. Structural estimates of this elasticity are close to zero, suggesting that global supply chains are sufficiently rigid to play an important role in the cross-country transmission of shocks. Chapter 3, joint with Andrei A. Levchenko, examines the role of non-technology shocks in the international transmission of business cycles. We propose a novel identification scheme for a non-technology business cycle shock, that we label “sentiment.” This is a shock orthogonal to conventionally identified surprise and news TFP shocks. We estimate the international transmission of three identified shocks -- surprise TFP, news of future TFP, and “sentiment” -- from the US to Canada, and find that the sentiment shock is more important than either of the technology shocks in generating business cycle comovement in the short run.