Determinants of intra‐firm trade: Evidence from foreign affiliates in Sub‐Saharan Africa

Abstract

By exploiting a unique sample of foreign affiliates in Sub‐Saharan Africa, we study previously examined and unexamined firm‐level determinants of intra‐firm trade. We document that foreign affiliates engaging in intra‐firm trade are relatively few and that the majority of these also engage in trade at arm's length, which accounts for an important fraction of their total trade. The identified firm‐level determinants of intra‐firm trade are consistent with property rights and intangible asset theories of the multinational firm, with international production hierarchy theories, as well as with theories of complex FDI and of multinational activity under credit constraints.

Not all that glitters is gold: Political stability and trade in Sub-Saharan Africa

“…In order to account for variable omission bias, three control variables are taken on board in the estimation exercises, notably: inflation, taxes on international trade and foreign direct investment (FDI). The choice of these variables is also motivated by contemporary international trade and economic development literature (Cipollina et al, 2016;Fonchamnyo & Akame, 2017;Dary & James, 2018;Blanas & Seric, 2018;Asongu & Kodila-Tedika, 2017;Bahmani-Oskooe & Gelan, 2018;Kaminchia, 2019;Shobande & Shodipe, 2019;Uysal & Mohamoud, 2019). In what follows, their expected signs are discussed.…”

“…Contemporary studies covered in the former strand on drivers of trade include: Kaminchia (2019) who has examined determinants of trade cost in the East African Community; Uysal and Mohamoud (2019) who have determined export performance in East African countries; Dary and James (2018) have explored trade credit supply in the African agro-food manufacturing sector from perspectives of motives and determinants while Blanas and Seric (2018) are concerned with drivers of intra-firm trade in SSA; Asongu and Kodila-Tedika (2017) have investigated linkages between trade, aid and terror; Cipollina, Demaria and Pietrovito (2016) focus on the role of innovation in boosting trade within the framework of quality standards; nexuses between international trade and exchange-rate are investigated by Bahmani-Oskooe and Gelan (2018) while Fonchamnyo and Akame (2017) examine drivers of export diversification in SSA. This study is closer to the second strand in its focus on the nexus between political stability and trade.…”

Multinational production and intra‐firm trade

“…Corcos et al (2013) exploit data on imported manufactured goods by French firms in 1999 and find that the choice of intra-firm sourcing is more likely in more productive, capital-and skill-intensive firms, and that imports from countries with well-functioning judicial institutions are more likely to be intrafirm, results that provide empirical support to the property rights theory (Antras, 2003;Antras and Helpman, 2004). Also, exploiting a unique sample of foreign affiliates in Sub-Saharan Africa, Blanas and Seric (2018) document that foreign affiliates engaging in intra-firm trade are relatively few (a finding in line with Ramondo et al, 2014) and that the majority of these also engage in trade at arm's length accounting for an important fraction of their total trade. Unlike these papers, we test the strength of the gravity of multinational production at different parts of the firm size distribution in order to infer the role of intra-firm trade, and provide a theoretical framework that rationalizes these empirical observations.…”

Governance Quality and Trade Performance in Sub-Saharan Africa

“…Foreign direct investment net inflow (% of GDP) measures net inflow (new investment inflow less disinvestment) in the reporting economy from foreign investors and is divided by GDP. The selection of these indicators builds on the attendant literature on international trade (Cipollina et al, 2016;Asongu & Kodila-Tedika, 2017;Fonchamnyo & Akame, 2017;Dary & James, 2018;Bahmani-Oskooe & Gelan, 2018;Blanas & Seric, 2018;Uysal & Mohamoud, 2019;Kaminchia, 2019). Concerning the anticipated signs, inflation is expected to negatively influence rents obtained from natural resources, whereas trade openness and FDI are anticipated to have the opposite or positive effect.This is essentially because FDI and trade openness are directly connected with the exploitation and exportation of natural resources, while high prices (i.e., inflation) could decrease the demand for resources, on the one hand, and, on the other, mitigate incentives for investment in the sector because investors have been documented to be privileged with economic environments with less macroeconomic uncertainty (Kelsey & le Roux, 2017, 2018.…”