Multi-plant economies of scale generated by firm-specific assets form a constituent feature of multinational firms. This paper uses a panel of Austrian manufacturing firms to test for multi-plant economies of scale by examining the dependence of labor productivity in plants of the home country on the volume of foreign production. As there is an inherent causality problem in testing this proposition, the econometric estimates use a simultaneous equation framework. The estimation results indeed indicate that firms which operate plants abroad achieve productivity advantages in domestic plants. The same holds true for affiliates of foreign multinationals.
Review of Industrial Organization – Springer Journals
Published: Oct 15, 2004
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