47 Again if we exclude Aguascalientes the square term loses significance but

47 again if we exclude aguascalientes the square term

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47 Again, if we exclude Aguascalientes, the square term loses significance, but judicial efficiency affects significantly positively the entry but negatively the technological intensity, confirming again all the other states are in the region of low judicial efficiency. 37
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We run the following regression: Y ij = β 1 D ( Foreign Expariates ij ) + β 2 Log ( Employees ij ) + µ j + ϵ ij Columns (2) and (3) of Table 9 show that both the exporter dummy and exports sales are pos- itively correlated with the use of expatriates, which is consistent with the conjecture that exports are positively correlated with the use of expatriates if exports are more transfer-stage intensive activities. Column (4) shows that domestic sales are not statistically significantly correlated with the use of expatriates, which is not perfectly consistent with the conjecture that domestic sales are negatively correlated with the use of expatriates if domestic sales are more execution-stage intensive activities. It may be the case that expatriates’ technology transfer affect also positively the domestic sales which may offset their potential disadvantages in the execution stage. Al- though the results suggest that exploring the consequences of complementarities between transfer and execution stages is worthwhile, the fact that we do not find positive significant correlation between expatriates and domestic sales allows us to rule out the cases where (a) high productive firms choose expatriates for reasons unrelated to our model and drives everything or where (b) some other factors are affecting both productivity and choice of expatriates. Finally, Column (1) shows that total sales as a whole is positively correlated with the use of expatriates. 7 Conclusion In this paper we have analyzed multinationals choice of their subsidiaries CEOs and related entry decisions in foreign markets. Namely whether, conditional on entry, they rely on foreign expatriates or local managers. We applied the information based theory of leadership of Hermalin (1998) and find that multinationals using cutting edge technology are more likely to employ foreign expatriates. These are key in fostering technological transfer to the subsidiary, given their ability to lead by exerting effort in the subsidiary. Doing so, they can convince workers of the value of the 38
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multinationals technology. In highly unstable economies, nevertheless, the expatriate managers are unable to provide high incentives to local workers. Regarding multinationals entry decision, our theory shows that developing countries face quantity-composition biases when deciding to create a pool of local managers. Not doing so they may attract less FDI but its composition will be biased towards firms at the technological cutting edge. Multinationals choice of their subsidiary CEO and entry decisions, as we analyze in the data, have important consequences in the local economy.
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