Booming Sector, Multinationals, and Local Economic Development
Can a resource boom induce long-term local economic development? Do multinational companies (MNCs) foster such equilibria or move away the economic gains from the booming sector? This study examines the heterogeneous economic impacts of MNCs and domestic firms on the characterization of the contemporaneous and long-term effects of resource booms in local labor markets. Informed by a spatial equilibrium model that features a pre- and post-booming economy with productive linkages and endogenous amenities, the empirical analysis exploits predetermined geology to identify the average and heterogeneous local economic impacts of a resource boom in an emerging resource-oriented country. Consistent with the model’s predictions, the evidence suggests that spillovers from local productive linkages of the booming sector can prevent productivity losses by crowding-out effects in the form of local Dutch-Disease, with higher productivity spillovers for MNCs in comparison to domestic firms. However, these spillovers are mediated by dis-amenities rising from externalities in production, and limited by the MNCs’ propensity to offshoring.
Recommended citation: Soto-Diaz, J. (2022). “Booming Sector, Multinationals, and Local Economic Development.”