Transport Modal Choice by Multinational Firms: Firm-level Evidence from Southeast Asia

Abstract

We examine transport-mode decisions by multinational firms to shed light on the role of freight logistics in multinational activity. Using a firm-level survey in Southeast Asia, we show that foreign ownership has a significantly positive and quantitatively large impact on the likelihood that air/sea transportation is chosen relative to truck shipping. This result is robust to the shipping distance, cross-border freight, and transport infrastructure. Both foreign-owned exporters and importers also tend to use air/sea transportation. Thus, our analysis presents a new distinction between multinational and domestic firms in their decision over transport modes.

Keywords:

• Transport mode
• logistics
• multinational firms
• multinomial logit

Notes

¹Fosfuri & Motta (1999) show that multinationals arise without firm-specific assets with the motive of technology acquisition. See Blonigen (2005) for empirical literature on multinationals.

²See Greenaway & Kneller (2007) for a survey on the role of firm heterogeneity in exporting and FDI.

³For instance, Navaretti & Castellani (2004) examine the impact of FDI on firm performance at home for Italian multinationals.

⁴We discuss alternative explanations for our empirical results in Section 3.

⁵JIT delivery and low inventories are made possible by the introduction of advanced information technology that facilitates the rapid flow of goods and information and coordinates the shipment of components and final goods between distant manufacturing plants. Computer-based logistics management reduces the substantial information costs of tracking the flow of goods delivered across borders, leading to a decline in inventory-carrying costs due to the international fragmentation of production. In this respect, Keane & Feinberg (2007) provide evidence that advanced information technology improved logistics management for US multinationals, which contributed to the growth of intra-firm trade between parent firms and their Canadian affiliates.

⁶See Data Appendix for details of the survey.

⁷We specify truck transportation as a benchmark transport mode in a multinomial logit model.

⁸We thank an anonymous referee for pointing out this issue.

⁹We thank an anonymous referee for pointing out these issues.