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The World Bank Economic Review Advance Access originally published online on June 16, 2009
The World Bank Economic Review 2009 23(2):323-346; doi:10.1093/wber/lhp002
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© The Author 2009. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Liquidity Constraints and Firms' Linkages with Multinationals

Beata S. Javorcik and Mariana Spatareanu

Beata S. Javorcik (corresponding author) is a reader in economics, University of Oxford, and a research affiliate at the Centre for Economic Policy Research.
Mariana Spatareanu is an assistant professor of economics at Rutgers University; her email address is marianas{at}andromeda.rutgers.edu

Correspondence: her email address is beata.javorcik{at}economics.ox.ac.uk

JEL codes: F21, F23, F36

Using a unique data set on the Czech Republic for 1994–2003, this article examines the relationship between a firm's liquidity constraints and its supply linkages with multinational corporations (MNCs). The empirical analysis indicates that Czech firms supplying multinationals are less credit constrained than are nonsuppliers. Closer inspection of the timing of the effect, however, suggests that the result is due to self-selection of less constrained firms into supplying multinationals rather than to the benefits derived from the supplying relationship. As the recent literature finds that productivity spillovers from foreign direct investment (FDI) are most likely to take place through contacts between MNCs and their local suppliers, this finding suggests that well-developed financial markets may be needed to take full advantage of the benefits associated with FDI inflows.


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