Working Paper: NBER ID: w31061
Authors: Marcus Biermann; Kilian Huber
Abstract: We show that multinational firms transmit shocks across countries through their internal capital markets. We study a credit supply shock to parent firms in Germany. International affiliates outside Germany supported their parents through internal lending, became financially constrained themselves, and experienced lower real growth. We find that managers were "Darwinist" with respect to international affiliates but "Socialist" in the home country, that internal capital markets transmitted the credit shock more strongly than a non-financial shock, and that access to developed credit markets attenuated the real effects. The total real impact of shock transmission through multinationals on foreign economies was large.
Keywords: multinational firms; internal capital markets; shock transmission; credit supply shock
JEL Codes: E4; F2; F3; G01; G2; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Commerzbank lending cut (G21) | decline in sales and employment of international affiliates (F44) |
| internal capital markets (G19) | shock transmission to affiliates (F42) |
| weaker international affiliates (F29) | stronger impact from lending cut (F65) |
| lending cut (G21) | total impact on foreign economies (F69) |
| internal capital markets (G19) | stronger transmission of financial shocks than nonfinancial shocks (F65) |
| recovery from shocks (E32) | takes several years (C41) |