Clear insights on the duty and tasks of multinational companies are main to understanding an international value chains, however empirical evidence on together enterprises is lacking. This shaft introduces the OECD analytical AMNE database, which gives unique methods to study the activities of multinational enterprises and the effect of an international value chain on investment and production patterns. It mirrors that MNEs and their networks of foreign affiliates are important players in today’s worldwide economy and, contradictory to conventional wisdom, greatly communicate with domestic companies.
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The tasks of multinational companies (MNEs) have traditionally drawn a the majority of policy attention as governments are keen to entice foreign straight investment (FDI). MNEs are thought to promote growth and also employment by creating brand-new jobs, realise brand-new investments, bring in new technologies, and permit host economic situations to integrate and also upgrade in global value chain (GVCs). The academic literature has additionally highlighted that MNEs have essential implications on the international transmission of financial shocks (Cravino and Levchenko 2016, Kleinert et al. 2015), countries’ comparative benefits (Alviarez 2019), gains from profession (Ramondo and also Rodriguez-Clare 2013, Tintelnot 2017), in benefiting domestic firms (Javorcik 2004, Keller and also Yeaple 2009), and in influencing governments trade policy goals (Baldwin 2014, Blanchard and also Matschke 2015).
Despite the substantial policy and scholastic discussion roughly MNEs, the empirical proof on their activities is much more minimal to a subset that countries and focused top top the production sector. The analytical AMNE database, occurred by a team of researcher at the OECD, contributes to filling in this void (Cadestin et al. 2018a). The dataset that was recently released covers 60 countries (including a ‘Rest that the World’) and also 34 sectors for the year 2005-2016. The database includes data ~ above output, value-added, exports, and also imports of intermediary inputs of international affiliates in host countries and, for more recent years, comparable data top top the tasks of MNE headquarters (and their residential affiliates) in residence countries. In addition, this information has been connected with the OECD Inter-Country Input-Output tables, providing necessary insights on the links and interrelationships between MNEs, international trade, and also the tasks of domestic firms (Andrenelli et al. 2018, Cadestin et al. 2018b, Cadestin et al. 2019).
In this pillar we paper four stylised facts around MNEs and also their network of foreign affiliates, highlighting their function in today’s global economy and also international trade.
1. MNEs play critical role in today’s worldwide economy
MNEs and their international affiliates account because that one 3rd of world output and GDP and also two-thirds of international trade (Figure 1). MNE’s donation to human being GDP was estimated at 32% in 2016, the which approximately one 3rd was by international affiliates abroad and two thirds by MNE headquarters and also domestic affiliates in the home country.
MNEs are found to it is in relatively more important in terms of exports and also imports, demonstrating the huge trading activities of this team of firms. In 2016, foreign affiliates were responsible because that 30 of an international exports, as contrasted to 34% for MNE headquarters. As soon as looking at imports of intermediary inputs (where we can differentiate the category of this firm on the importing side), we find smaller shares for MNEs, an especially for international affiliates, which just import 13% of every intermediate inputs.
Figure 1 pervasiveness of MNEs in the an international economy, 2016 (%)
Source: OECD analysis AMNE database.
2. Foreign affiliates are different from residential companies
Previous study for individual countries has shown that international affiliates differ considerably from residential companies: international affiliates are as whole found to be larger, more capital intensive, an ext productive and invest more in R&D. Follow to the OECD analysis AMNE database, international affiliates space also more oriented towards international sectors (through exports), buy more intermediates (consequently have actually a reduced value-added/output ratio), and resource these intermediates an ext from abroad, therefore incorporating larger international value added in their calculation (Figure 2).
These differences in between foreign affiliates and also domestic companies are early out to distinctions in production technologies but likewise because of the specific roles of MNE affiliates. Part affiliates are motivated by the desire to ar production close to customers and also avoid trade costs (i.e. Horizontal MNEs) while others create goods and also services that are provided as inputs for production activities within the MNE network in other nations (i.e. Upright MNEs).
Figure 2 Differences in output in between foreign affiliates and also domestic companies, 2016 (% of output)
Source: OECD analysis AMNE database.
3. International affiliates do communicate with regional firms
Contrary to timeless wisdom, international affiliates have strong backward and forward linkages with domestic companies, including SMEs. Foreign affiliates source much more than 2 thirds of intermediates from your host economic climate (Figure 3, height panel) and more than 50% of domestic intermediate consumption is offered by non-MNEs (of i beg your pardon the bulk are little and medium-sized enterprises). Additional on, foreign affiliates run not just as client in host countries, but additionally as carriers of intermediates and final products. About two thirds that the production of international affiliates feeds into domestic value chains: 29% the affiliates’ production in 2016 was for the final domestic market, while 38% to be used in your ar as an intake to other firms in the domestic economy (Figure 3, bottom panel). When again, the many important domestic clients of foreign affiliates are domestic non-MNEs, buying 56% of foreign affiliate domestic intermediate production.
Differences exist throughout countries and industries (Cadestin et al. 2019), yet the assertion that international affiliates operate in one isolated path in host countries and resource all intermediary goods and also services native within their MNE network does not seem come be sustained by the data.
Figure 3 Sourcing structure (top) and also output usage (bottom) of foreign affiliates globally, 2016 (%)
Source: OECD analytical AMNE database.
4. MNEs are associated in different types of activities across GVCs
MNEs are believed to be an essential driver of the worldwide fragmentation of manufacturing within GVCs (Baldwin 2016), as illustrated by the truth that MNEs room responsible for 2 thirds of people exports. Thanks to the granularity the the database, we can likewise see that MNEs usage trade and investment for different purposes in the value chain and also have facility strategies.
Figure 4 mirrors that international affiliates can be involved in horizontal strategies when creating final products for the residential market or for exports (export-platform FDI), and also intermediate inputs provided by residential firms. The exports of entry by foreign affiliates rather reflect MNEs’ vertical strategies. Number 4 argues that this vertical strategies are not as common as periodically argued. This detect is continuous with recent evidence suggesting that the use of third-party service providers is more prevalent in ~ MNEs than initially thought. The literature has presented that if MNEs frequently prefer to resource inputs from independent firms v non-equity partnerships like franchising, contractual relationships, strategic partnerships, and also so on, they largely use their foreign affiliates come either transport capabilities (Atalay et al. 2014, Ramondo et al. 2016) or to develop technologically crucial inputs (Berlingieri et al. 2018).
More importantly, figure 4 illustrates differences across industries in the function played by foreign affiliates. Because that example, international affiliates in the computer and electronics industry are more involved in vertical tactics than foreign affiliates in the food sector. Moreover, foreign affiliates in the chemicals industry administer a far-reaching share of input to residential firms that room not part of MNEs, something not observed in the computer and electronics industry, i beg your pardon is an additional industry where the worldwide fragmentation of manufacturing is prevalent.
Figure 4 Decomposition of output of international affiliates by type of transaction, selected industries, 2016 (%)
Source: OECD analysis AMNE database.
These brand-new findings carry out a variety of insights of straight relevance for existing policy discussions. First, there are the timeless concerns ~ above the affect of MNE tasks in parent nations (offshoring the employment, etc.), yet the data present that actually many of MNE activities are tho ‘at home’. Second, the proof shows that MNE affiliates run as the linchpin in between international and also domestic components of value chains together they cooperate and also contract substantially with residential companies in the hold economy. MNEs generally rely on SMEs to become global firms and expand internationally. The evidence thus clearly suggests the policymakers need to not choose in between supporting SMEs and promoting MNEs in creating a conducive organization environment. Instead, policies aimed at enhancing the participation of countries and also firms in GVCs have to be inclusive because that the different varieties of firms and to not neglect the domestic part of worth chains.
Third, the proof gathered likewise highlights the trade and also investment are significantly intertwined in GVCs. However, once it involves policymaking, trade and also investment room still often encountered in ‘silos’ and also the international regime because that trade and investment remains fragmented. More coordination and also consistency between rules for trade and also investment, and a more comprehensive set the policy issues such as activity of people, intellectual property or competition, can be necessary to promote or control the tasks of MNEs. Finally, problems related to taxation and also profit shifting show the challenge in setup rules as soon as companies operate in several countries and also combine trade, investment and IP operation to organise production.
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