The Theory of Endowment, Intra-Industry, and Multinational Trade
NBER Working Paper No. 5529
We consider a trade model combining a 2x2x2 Heckscher-Ohlin structure, monopolistic competition, transport costs, and multinational corporations. We demonstrate how the mix of national and multinational firms that operate in equilibrium depends on technology and on the division of the world endowment between countries. Multinationals are more likely to exist the more similar are countries in both relative and absolute endowments. Where multinationals exist they reduce the volume of trade and raise world welfare (although not necessarily that of both countries). They also reduce the agglomeration forces that arise when international factor mobility is allowed.
Published: Markusen, James R. and Anthony J. Venables. "The Theory Of Endowment, Intra-Industry And Multi-National Trade," Journal of International Economics, 2000, v52(2,Dec), 209-234.