A Global Database of Foreign Affiliate Activity

This paper produces a new dataset to further the literature on the behavior of multinational firms. The Eurostat database, with a large number of sector-level, bilateral observations on foreign affiliate sales, provides a basis from which to extrapolate the relationships between various host and source country factors and the foreign affiliate activity produced by them. This paper exploits the detailed level of the data by introducing sector-specific variables which in turn permit out of sample predictions. Further, the large number of excess zeros in the Eurostat dataset presents added complexity and is addressed using techniques borrowed from the trade literature, which also experiences a “zeros” problem. The datasets produced in this paper also serves as an input into the FDI-GTAP model of Lakatos and Fukui (2012). This model integrates the datasets produced in this paper into a model that permits the analysis of the behavior of foreign affiliates within the context of a general equilibrium model. The dataset is combined with other data on foreign affiliate sales and together with an optimization procedure produces a new dataset based on all of existing data sources.