TY  - JOUR
AU  - Markusen,James R.
AU  - Venables,Anthony J.
AU  - Konan,Denise Eby
AU  - Zhang,Kevin H.
TI  - A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5696
PY  - 1996
Y2  - August 1996
UR  - http://www.nber.org/papers/w5696
L1  - http://www.nber.org/papers/w5696.pdf
N1  - Author contact info:
James R. Markusen
Department of Economics
University of Colorado
Boulder, CO 80309-0256
Tel: 303/492-0748
Fax: 303/492-8960
E-Mail: james.markusen@colorado.edu

Anthony Venables
Department of Economics
University of Oxford
Manor Road Building
Manor Road
Oxford OX1 3UQ, United Kingdom
and CEPR
E-Mail: tony.venables@economics.ox.ac.uk
AB  - This paper contributes to research endogenizing multinational firms in general-equilibrium trade models.  We attempt to integrate separate contributions on horizontal multinationals which produce the same final product in multiple locations, with work on vertical multinationals, which geographically fragment production by stages. Previously derived results now emerge as special cases of a more general model.  Vertical multinationals dominate when countries are very different in relative factor endowments.  Horizontal multinationals dominate when the countries are similar in size and in relative endowments, and trade costs are moderate to high.  In some cases, foreign investment or trade liberalization leads to a reversal in the direction of trade.  Investment liberalization can also lead to an increase in the volume of trade and produces a strong tendency toward factor-price equalization.  Thus direct investment can be a complement to trade in both a volume-of-trade sense and in a welfare sense.
ER  -