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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

Related research

Keywords: Foreign Direct Investment Multinational firms International risk sharing;

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References

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  20. Chiara Criscuolo & Ralf Martin, 2005. "Multinationals and US productivity leadership: evidence from Great Britain," LSE Research Online Documents on Economics 19914, London School of Economics and Political Science, LSE Library.
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Citations

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Cited by:
  1. 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.
  2. 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.).
  3. Jörn Kleinert & Julien Martin & Farid Toubal, 2012. "The few leading the many: foreign affiliates and business cycle comovement," Globalization and Monetary Policy Institute Working Paper 116, Federal Reserve Bank of Dallas.
  4. José L. Fillat & Stefania Garetto, 2010. "Risk, returns, and multinational production," Risk and Policy Analysis Unit Working Paper QAU10-5, Federal Reserve Bank of Boston.
  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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