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The role of multinational production in a risky environment

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  • Ramondo, Natalia
  • Rappoport, Veronica

Abstract

This paper explores the aggregate consequences of Foreign Direct Investment (FDI) on the opportunities for risk diversification available to consumers. The crucial difference between FDI and other international financial flows is that the former involves technology flows across countries. We present a model where firm-embedded productivity can be transferred costly across countries through the activity of multinational firms. We find that risk patterns affect multinationals' location decisions and, in turn, these decisions change the scope for international risk diversification even in a world with complete financial markets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 81 (2010)
Issue (Month): 2 (July)
Pages: 240-252

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Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:240-252

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Foreign Direct Investment Multinational firms International risk sharing;

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References

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Cited by:
  1. Kleinert, Jörn & Martin, Julien & Toubal, Farid, 2012. "The Few Leading The Many: Foreign Affiliates and Business Cycle Comovement," CEPR Discussion Papers 9129, C.E.P.R. Discussion Papers.
  2. Stefania Garetto & Jose Luis Fillat, 2010. "Risk, Returns, and Multinational Production," 2010 Meeting Papers 777, Society for Economic Dynamics.
  3. Silvio Contessi, 2010. "What happens when Wal-Mart comes to your country? multinational firms' entry, productivity, and inefficiency," Working Papers 2010-043, Federal Reserve Bank of St. Louis.
  4. Logan T. Lewis, 2011. "Exports versus multinational production under nominal uncertainty," International Finance Discussion Papers 1038, Board of Governors of the Federal Reserve System (U.S.).
  5. Tarek Alexander Hassan, 2010. "Country Size, Currency Areas, and International Asset Returns," 2010 Meeting Papers 365, Society for Economic Dynamics.

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