Foreign direct investment and the rise of multinational market power

We examine how greenfield foreign direct investment (FDI) shapes the market power of US multinational corporations using firm-level panel data from 2003 to 2021. Our analysis reveals that FDI in R&D activities is positively associated with future markups, while other forms of FDI show no such effect. Leveraging the 2015 reform to international patent box regimes, we show that tax-motivated FDI, particularly headquarters investments, became a key driver of markups post-reform. These findings highlight the role of global tax architecture in amplifying firm-level market power.