Journal Article

Liquidity Constraints and Firms' Linkages with Multinationals

Beata S. Javorcik and Mariana Spatareanu

in The World Bank Economic Review

Volume 23, issue 2, pages 323-346
Published in print June 2009 | ISSN: 0258-6770
Published online June 2009 | e-ISSN: 1564-698X | DOI: http://dx.doi.org/10.1093/wber/lhp002
Liquidity Constraints and Firms' Linkages with Multinationals

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Using a unique data set on the Czech Republic for 1994–2003, this article examines the relationship between a firm's liquidity constraints and its supply linkages with multinational corporations (MNCs). The empirical analysis indicates that Czech firms supplying multinationals are less credit constrained than are nonsuppliers. Closer inspection of the timing of the effect, however, suggests that the result is due to self-selection of less constrained firms into supplying multinationals rather than to the benefits derived from the supplying relationship. As the recent literature finds that productivity spillovers from foreign direct investment (FDI) are most likely to take place through contacts between MNCs and their local suppliers, this finding suggests that well-developed financial markets may be needed to take full advantage of the benefits associated with FDI inflows.

Keywords: F21; F23; F36

Journal Article.  9180 words.  Illustrated.

Subjects: International Factor Movements and International Business ; International Finance

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