NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence

James R. Markusen, Keith E. Maskus

NBER Working Paper No. 8334
Issued in June 2001
NBER Program(s):   ITI

Beginning in the early 1980s, theoretical analyses have incorporated the multinational firm into the microeconomic, general-equilibrium theory of international trade. Recent advances indicate how vertical and horizontal multinationals arise endogenously as determined by country characteristics, including relative size and relative endowment differences, and trade and investment costs. Results also characterize the relationship between foreign affiliate production and international trade in goods and services. In this paper, we survey some of this recent work, and note the testable predictions generated in the theory. In the second part of the paper, we examine empirical results that relate foreign affiliate production to country characteristics and trade/investment cost factors. We also review findings from analyses of the pattern of substitutability or complementarity between trade and foreign production.

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Document Object Identifier (DOI): 10.3386/w8334

Published: Harrigan, James and Kwan Choi (eds.) Handbook of Empirical International Trade, 2003.

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