TY  - JOUR
AU  - Markusen,James R.
AU  - Maskus,Keith E.
TI  - Multinational Firms:  Reconciling Theory and Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7163
PY  - 1999
Y2  - June 1999
UR  - http://www.nber.org/papers/w7163
L1  - http://www.nber.org/papers/w7163.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
M1  - published as James R. Markusen, Keith E. Maskus. "Multinational Firms: Reconciling Theory and Evidence," in Magnus Blomstrom and Linda S. Goldberg, editors, "Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey" University of Chicago Press (2001)

AB  - An important component of Robert Lipsey's work has been his research on multinational firms, and his careful documentation of their behavior in terms of production and intra-firm trade.  In this paper, we extend recent theory referred to as the knowledge-capital model', which simultaneously generates motives for both horizontal and vertical multinational production.  We use this model to derive predictions about foreign affiliates' pattern of production for local markets versus production for exports as functions of country characteristics such as market sizes, size differences, and relative endowment differences. These predictions are then taken to data on affiliate production and trade.  Results confirm several hypotheses.  The ratio of production for export sales to production for local sale by affiliates of foreign multinationals depends negatively on market size, investment and trade costs in the host country, and positively on the relative skilled-labor abundance of the parent country (skilled-labor scarcity of the host country).
ER  -