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

par Carballo, Jerónimo;Marra De Artinano, Ignacio ;Volpe Martincus, Christian
Publication Publié, 2023-01

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Résumé :

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.