Can multinationals withstand growing trade barriers?
Paper by: Mahdi Ghodsi, Michael Landesmann, and Nina Vujanovic
Presented by: Nina Vujanovic
Multinational enterprises (MNEs) are increasingly dealing with challenges shaped by the new geopolitical and trade environments. Besides traditional tariffs, exporting firms need to comply with regulatory non- tariff measures (NTMs) in the form of technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) safety standards. While trade costs associated with these trade policy measures affect all firms, implications could be multifaceted for multinationals that base their international activities on exporting and importing and are important for the formation of global supply chains. Applying Poisson pseudo maximum likelihood to the unique Orbis dataset of firms on multinational networks, we show that NTMs pose a higher challenge to MNEs’ affiliates activity and performance than tariffs do. High-tech manufacturing subsidiaries of foreign MNEs are particularly vulnerable to these NTMs, as they suffer higher regulatory losses. However, multinational affiliates that have higher productivity, full foreign ownership representation, and those that are embedded within a larger international network of ownership can turn these trade challenges to their advantage. Our results have important implications for policymakers regulating trade in goods.
The impact of regulatory divergence in non-tariff measures on cross-border investment of multinationals
Paper by: Andrzej Cieslik and Mahdi Ghodsi
Presented by: Mahdi Ghodsi
In this webinar, we present how the international regulatory convergence in non-tariff measures affect the cross-border investment of multinational firms. We verify two main research hypotheses derived from the modified knowledge capital model of multinational enterprise. The first hypothesis postulates that when regulatory divergence with numerous regulatory measures in the destination emerges, trade cost also increases that stimulate horizontal multinational activity. The second hypothesis states that regulatory convergence could reduce trade costs between the two trading partners that facilitates vertical multinational activity. To verify these hypotheses, we use firm level data from the Orbis database for the recent 2004-2020 period and the PPML estimation technique. Our estimation results for the full sample of firms show that bigger regulatory divergence is negatively associated with the extent of multinational activity. In addition, TBT convergence seems more important than SPS convergence. Moreover, more productive firms are more able to overcome problems associated with both the TBT and SPS regulatory distances. Finally, we find significant heterogeneity across sectors that vary according to technology intensity.
Zoom link will be sent upon registration.