By selling products embodying cultural information related to their country of origin, multinational enterprises (MNEs) can promote national exports, according to research on Sweden’s IKEA by Dylan Bourny, Daniel Mirza and Camélia Turcu to be presented at the virtual annual congress of the European Economic Association 2020.
The authors argue that IKEA offers an ideal case to identify a multinational’s culture-promotion effect on trade. They build a dataset of IKEA’s presence in countries around the world, between 1995 and 2015, and merge it with product level trade between pairs of countries.
They find solid evidence of an ‘externality’ linked to IKEA: the setting of an IKEA new store in a destination country increases trade flows by around 2% from Sweden for products that resemble what the multinational offers (despite being completely unrelated to that multinational). This result is driven primarily by the products identified to encompass a high-cultural content.
Finally, the study demonstrates that IKEA’s externality spreads beyond the products similar to what IKEA sells: other products coming from Sweden benefit from a new IKEA store openness as their trade increases although at a smaller rate. An externality of the same magnitude, but less robust empirically, is also identified for other Scandinavian countries' exports.
Do MNEs promote the culture of their country of origin? Do they produce positive externalities, through the cultural content of the products they sell abroad, on products being exported by firms producing at home? If so, how can one identify such externalities, especially on the exports of products from the country of origin?
It is very difficult to identify and estimate the culture promotion effect on trade due to multinationals’ activities. This is because an important trade activity is usually created by the newly established affiliates between home and the hosting country, and through global value chains (trans-border supply of inputs and services within the multinational or with its subcontractors): the mechanisms underlying the relations between MNEs and trade in this context are driven by supply side considerations (Antras and Yeaple, 2014). Thus, within this framework, the identification of the culture-transmission effect is very hard, if not impossible, to set.
This study takes a different approach as the authors are explicitly interested in the identification of changes in preferences due to the presence of multinationals in host countries, hence in the demand side considerations.
The authors’ baseline hypothesis is that foreign consumers learn more about the culture, tastes and way of living of other countries through the products sold by the latter. If this hypothesis is true then it has an implication: foreign consumers might be incited to change their preferences in favour of the products coming from the country of origin of the MNE.
To the authors’ knowledge, this is the first study to define a strategy that should be able to identify such a preference-sourced externality of MNEs on international trade. The Swedish company IKEA is a typical case of an MNE where the elements for identification that the authors set can be fulfilled.
They build an original dataset on IKEA presence in foreign markets (e.g., IKEA presence, IKEA number of stores). They merge it with trade data at product level (taken from COMTRADE and aggregated up to 4-digit level ending with about 1200 products) over the period 1995-2015.
The main results can be summarised as follows. First, IKEA presence in a destination promotes Swedish exports of products similar to the ones of IKEA, to that destination. In particular, the study finds a very robust increase of about 2% of exports, from Sweden, for products that resemble to what IKEA offers.
Second, the study proves that this impact appears to grow linearly with the number of IKEA stores in the destination country. An additional IKEA store increases by 0.7% exports from Sweden. Moreover, this effect is clearly driven by the 20 IKEA-like highly cultural products identified ex-ante to be directly linked to the Swedish culture.
Third, IKEA's externality spreads beyond the products similar to what IKEA sells: other products coming from Sweden benefit from a new IKEA store openness as their trade increases but at a rate that is three times smaller.
Finally, the results for other Scandinavian countries (Finland, Norway, Denmark), although less robust, similarly indicate an increase of Scandinavian exports in goods that resemble to the ones of the multinational and in IKEA-like highly cultural goods, in particular, through the presence of IKEA.
The study is thus a good start to identify the ambassador role of some multinationals to promote their home country's culture (through the products they sell abroad). But the authors are not able to assess the external validity of their study, being based on one company only, IKEA.
Yet, if one thinks that multinationals, through their progressive spread over the globe, might have the ability to promote their country's culture, then policymakers should reconsider a different manner to promote their home products than the traditional way only relying on the civil service of their embassies. Maybe a policy creating some incentives for multinationals to contribute to home promotion might be a good alternative (or complement).
Dylan Bourny, PhD Student, University of Orléans, LEO CNRS FRE 2014
Email: dylan.bourny@univ-orleans.fr
Website: https://sites.google.com/view/bourny-dylan/home-accueil
Daniel Mirza, Professor of Economics, University of Tours, LEO CNRS FRE 2014
Email: daniel.mirza@univ-tours.fr
Website: https://danielmirza.wixsite.com/danielmirza
Camélia Turcu, Professor of Economics, University of Orléans, LEO CNRS FRE 2014
Email: camelia.turcu@univ-orleans.fr
Website: http://www.leo-univ-orleans.fr/fr/membres/#camelia.turcu@univ-orleans.fr