Working Paper: CEPR ID: DP7058
Authors: Beata Smarzynska Javorcik; Mariana Spatareanu
Abstract: Using a unique data set from the Czech Republic for 1994-2003, this study 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 MNCs are less credit constrained than non-suppliers. A closer inspection of the timing of the effect, however, suggests that this result is due to less constrained firms self-selecting into becoming MNC suppliers rather than the benefits derived from the supplying relationship. As 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, our finding suggests that well-developed financial markets may be needed in order to take full advantage of the benefits associated with FDI inflows.
Keywords: cash flow; FDI spillovers; foreign direct investment; liquidity constraints
JEL Codes: F21; F23; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Liquidity constraints (E51) | MNC supplier status (F23) |
| MNC supplier status (F23) | Liquidity constraints (E51) |
| MNC suppliers are less credit constrained than non-suppliers (E51) | Liquidity constraints (E51) |
| Self-selection of less constrained firms (L20) | MNC supplier status (F23) |
| Higher liquidity ratios (G33) | MNC supplier status (F23) |
| Instrumenting for supplier status (L14) | Liquidity constraints (E51) |
| MNCs extending credit to suppliers (F23) | Liquidity constraints (E51) |