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Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence

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  • Jerónimo Carballo
  • Ignacio Marra De Artinano
  • Christian Volpe Martincus

Abstract

While countries make use of a wide range of policies to attract multinational firms, identifying the effect of such policies is difficult. Combining firm-level data on both the location of these firms’ foreign affiliates and detailed service-specific information from Costa Rica’s investment promotion agency (IPA) over time, we find that IPA support significantly increases the probability that a multinational firm establishes its first affiliate in the country. Using existing theory and data, we estimate that the associated welfare gains are between 0.2%-0.4%. We then show that the effect is primarily driven by the resolution of information asymmetries. It is stronger for IPA information services and on multinational firms from countries and in sectors facing more severe information frictions.

Suggested Citation

  • Jerónimo Carballo & Ignacio Marra De Artinano & Christian Volpe Martincus, 2023. "Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence," Working Papers ECARES 2023-02, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/355528
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    1. Jerónimo Carballo & Ignacio Marra de Artiñano & Christian Volpe Martincus, 2021. "Information Frictions, Investment Promotion, and Multinational Production: Firm-Level Evidence," CESifo Working Paper Series 9043, CESifo.
    2. Carballo, Jerónimo & Marra de Artiñano, Ignacio & Sztajerowska, Monika & Volpe Martincus, Christian, 2023. "How Do Investment Promotion Policies Affect Sustainability?," IDB Publications (Working Papers) 13306, Inter-American Development Bank.

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    More about this item

    Keywords

    Information Frictions; Investment Promotion; Multinational Production;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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