Can Multinational Linkages Be Leveraged for Development?

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Less developed countries compete to attract multinational corporations (MNCs), often seen as growth engines. Meanwhile, domestic firms, workers, and consumers express concerns that MNCs may offer weak trickle-down benefits while increasing their vulnerability to global shocks. This tension is not new: the debate on the trade-offs associated with MNC-led development strategies is long-standing yet unresolved. LINK4DEV will break new ground in three ways. First, the program will examine the impact of MNCs and their linkages on development through a wide (inside-the-firm) micro to (cross-country) macro lens. Second, it will combine “big data” and causal-inference methods with novel theory. Third, it will partner with governments from four continents, maximizing cross-country learning and impact. LINK4DEV consists of four interconnected projects. Project 1 will examine whether MNCs foster linkages with local firms or operate in silos, increasing inequality. It will provide a first-time anatomy of MNC linkages in the production networks of four economies at different development stages: Uganda, Costa Rica, Turkey, and Belgium. Project 2 will examine whether technology transfers from MNCs to local suppliers are socially optimal in the same four economies. It will then estimate the associated aggregate economic gains and identify policies to increase them. Project 3 will study why MNCs source a large share of inputs globally, focusing on the role of centralized decision-making in MNCs. Attracting MNCs with global sourcing undermines efforts to promote local linkages. This project will merge detailed transaction records from Costa Rica with global supplier and survey data for MNCs. Project 4 will assess how far-reaching the effects of an international trade shock are and how central MNCs are to these effects. It will leverage a cyberattack on Costa Rica’s customs system and a new economy-wide mapping of all firm-to-firm, firm-to-worker, and firm-to-consumer interactions.