Laura Alfaro Articles — HBS Working Knowledge

The Global Networks of Multinational Firms

Authors:	Laura Alfaro and Maggie Chen
Published:	December 23, 2009
Paper Release Date:	December 2009
Feature:	Working Papers

When and why do multinationals group together overseas? Do they agglomerate in the same fashion abroad as they do at home? An answer to these questions is central to the long-standing debate over the consequences of foreign direct investment (FDI). It is critical to understand interdependencies of multinational networks and how multinationals influence one another in their activities at home and overseas. HBS professor Laura Alfaro and George Washington University professor Maggie Chen examine the global network of multinationals and study the significance and causes of multinational agglomeration. Their results provide further evidence of the increasing separation of headquarters services and production activities within multinational firms. The differential specialization of headquarters and subsidiaries leads to distinct patterns of agglomeration.

India Transformed? Insights from the Firm Level 1988-2005

Authors:	Laura Alfaro and Anusha Chari
Published:	November 18, 2009
Paper Release Date:	October 2009
Feature:	Working Papers

Between 1986 and 2005, Indian growth put to rest the concern that there was something about the "nature of India" that made rapid growth difficult. Following broad-ranging reforms in the mid-1980s and early 1990s, the state deregulated entry, both domestic and foreign, in many industries, and also hugely reduced barriers to trade. Laura Alfaro of Harvard Business School and Anusha Chari of the University of North Carolina at Chapel Hill analyze the evolution of India's industrial structure at the firm level following the reforms. Despite the substantial increase in the number of private and foreign firms, the overall pattern that emerges is one of continued incumbent dominance in terms of assets, sales, and profits in both state-owned and traditional private firms.

Intra-Industry Foreign Direct Investment

Authors:	Laura Alfaro and Andrew Charlton
Published:	September 21, 2007
Paper Release Date:	September 2007
Feature:	Working Papers

One of the enduring puzzles for researchers on FDI has been the role and importance of "horizontal" and "vertical" FDI. Horizontal FDI tends to mean locating production closer to customers and avoiding trade costs. Vertical FDI, on the other hand, represents firms' attempts to take advantage of cross-border factor cost differences. A central challenge for study has been the absence of firm-level data to distinguish properly among the types of and motivations for FDI. Alfaro and Charlton analyzed a new dataset, and in this paper present the first detailed characterization of the location, ownership, and activity of global multinational subsidiaries.

Firm-Size Distribution and Cross-Country Income Differences

Authors:	Laura Alfaro, Andrew Charlton and Fabio Kanczuk
Published:	June 1, 2007
Paper Release Date:	May 2007
Feature:	Working Papers

Country-to-country differences in per-worker income are known to be enormous. Per capita income in the richest countries exceeds that in the poorest countries by more than a factor of 50. The consensus view in scholarly literature on development accounting is that two-thirds of these variations can be attributed to differences in efficiency or total factor productivity (TFP). Emerging research, however, suggests other possibilities. Alfaro and coauthors, applied a monopolistic competitive firm model to a new dataset of more than 20 million firms in nearly 80 developing and industrialized countries. They then calculated the extent to which differences in the misallocation of resources (as well as differences in the amount of physical and human capital resources) explain dispersion in income per worker. Their results suggest that misallocation of resources is a crucial determinant of income dispersion.

The Price of Capital: Evidence from Trade Data

Authors:	Laura Alfaro and Faisal Z. Ahmed
Published:	May 17, 2007
Paper Release Date:	April 2007
Feature:	Working Papers

Is the price of capital higher across different countries? Motivated by the fact that most countries import the bulk of machinery and equipment, Alfaro and Ahmed used an alternative trade data to capture differences in the price of capital goods across countries. On this basis they found evidence that capital goods are more expensive in poor countries.

Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?

Authors:	Laura Alfaro and Andrew Charlton
Published:	May 16, 2007
Paper Release Date:	April 2007
Feature:	Working Papers

Understanding the effect of foreign direct investment is important for two main reasons: It informs foreign investment policy, and it has implications for the effect of rapidly growing investment flows on the process of economic development. While academics tend to treat foreign direct investment as a homogenous capital flow, policymakers maintain that some FDI projects are better than others. In fact, national policies toward FDI seek to attract some types of FDI while regulating other types, reflecting a belief among policymakers that FDI projects differ greatly in terms of the national benefits to be derived from them. Policymakers from Dublin to Beijing, for instance, have implemented complex FDI regimes in order to influence the nature of FDI projects attracted to their shores. Using a dataset on 29 countries, Alfaro and Charlton distinguished different qualities of FDI in order to examine the various links between types of FDI and growth.

All Eyes on Slovakia's Flat Tax

Q&A with:	Laura Alfaro, Vincent Dessain, and Ane Damgaard Jensen
Published:	April 30, 2007
Feature:	Research & Ideas

The flat tax is an idea that's burst to life in post-communist Eastern and Central Europe, especially in Slovakia. But is the rest of the world ready? A new Harvard Business School case on Slovakia's complex experience highlights many hurdles elsewhere, as HBS professor Laura Alfaro, Europe Research Center Director Vincent Dessain, and Research Assistant Ane Damgaard Jensen explain in this Q&A.

How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages

Authors:	Laura Alfaro, Areendam Chanda, Sebnem Kalemli-Ozcan, and Selin Sayek
Published:	September 27, 2006
Paper Release Date:	August 2006
Feature:	Working Papers

Does FDI help developing countries as much as we think? While theoretical models imply that FDI is beneficial for a host country's development—a belief widely shared among policymakers—the empirical evidence does not support this view. This paper bridges the gap between theoretical and empirical literature with a model and calibration exercises that examine the role of local financial markets. Ultimately, Alfaro and colleagues contribute to existing research that emphasizes how local policies and institutions may actually limit the potential benefits that FDI could provide to a host country.

Optimal Reserve Management and Sovereign Debt

Authors:	Laura Alfaro and Fabio Kanczuk
Published:	September 5, 2006
Paper Release Date:	August 2006
Feature:	Working Papers

One of the puzzles in the study of emerging markets is understanding why developing countries accumulate reserves as a means to avoid a financial crisis, rather than work to reduce their sovereign debt. In 2005, for example, reserve accumulation totaled 20 percent of gross domestic product in low- and middle-income countries but only about 5 percent in high-income countries. The costs and benefits of reserve accumulation still aren't clear, nor do economists agree on the optimal level of foreign reserves that sovereign countries should hold. By testing a model of a small, open economy with non-contingent debt and reserve assets, Alfaro and Kanczuk explored the issue in depth.

International Financial Integration and Entrepreneurship

Authors:	Laura Alfaro and Andrew Charlton
Published:	September 5, 2006
Paper Release Date:	August 2006
Feature:	Working Papers

Why does entrepreneurship flourish in some countries and struggle in others? Economists and policymakers are divided on whether the rapid rate of global financial integration, specifically the explosive growth of foreign direct investment, helps or hurts local entrepreneurs and domestic economies. To see the differential effects of restrictions on capital mobility on entrepreneurship, Alfaro of HBS and Charlton of the London School of Economics analyzed data on 24 million firms—listed and unlisted—in nearly 100 countries in 1999 and 2004.

Lessons from a Nasty Trade Dispute

Q&A with:	Rawi E. Abdelal and Laura Alfaro
Published:	November 17, 2003
Feature:	Research & Ideas

Even if the World Trade Organization rules in favor of your country’s government, it may not mean the end of a business dispute. HBS professors Rawi Abdelal and Laura Alfaro explain why.

In Troubled Africa, Botswana Flowers

Q&A with:	Laura Alfaro and Debora L. Spar
Published:	February 24, 2003
Feature:	Research & Ideas

Quick, name the country with the highest sustained growth in real output over the last forty years. The surprising answer: Botswana. Harvard Business School professor Debora L. Spar discusses the dynamics behind this little-reported story.

Faculty Research Looks to Latin America

Published:	August 21, 2000
Feature:	HBS Global

HBS faculty have long found Latin America a fertile landscape for in-depth study. In Buenos Aires, nine members of the faculty presented synopses of their latest research—the raw material for present and future case studies, journal articles, books and new management ideas.