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From the Theory of the Firm to FDI and Internalisation: A Survey

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Author Info
Valeria Gattai () (Bocconi University and ISESAO)

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Abstract

This paper surveys recent contributions on the Internalisation issue, based on different theories of the firm, to show how the make-or-buy decision, at an international level, has been assessed through the opening up of the “black box” – traditionally explored by the theorists of the firm – and the simultaneous endogenization of the market environment – as in the International Economics tradition. In particular, we consider three paradigms – Grossman Hart Moore treatment of holdup and contractual incompleteness, Holmstrom Milgrom view of the firm as an incentive system, Aghion-Tirole conceptualisation of formal and real authority in organisations – and show how they have been embedded in industry and general equilibrium models of FDI to explain the boundaries of global firms.

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Publisher Info
Article provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.

Volume (Year): 65 (2006)
Issue (Month): 2 (November)
Pages: 225-262
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Handle: RePEc:gde:journl:gde_v65_n2_p225-262

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Related research
Keywords: FDI; internalisation; integration; outsourcing; theory of the firm;

Other versions of this item:

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
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  6. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Ottaviano, Gianmarco Ireo Paolo & Turrini, Alessandro Antonio, 2003. "Distance and FDI When Contracts are Incomplete," CEPR Discussion Papers 4041, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  19. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November. [Downloadable!] (restricted)
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  20. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September. [Downloadable!] (restricted)
  21. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February. [Downloadable!] (restricted)
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  26. Hanson, Gordon H, 1995. "Incomplete Contracts, Risk, and Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 341-63, May. [Downloadable!] (restricted)
  27. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  28. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Blackwell Publishing, vol. 104(4), pages 495-513, December. [Downloadable!] (restricted)
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  29. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July. [Downloadable!] (restricted)
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  30. Markusen, James R., 2001. "Contracts, intellectual property rights, and multinational investment in developing countries," Journal of International Economics, Elsevier, vol. 53(1), pages 189-204, February. [Downloadable!] (restricted)
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  31. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August. [Downloadable!] (restricted)
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  32. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  33. Paolo Manasse & Alessandro Turrini, . "Trade, Wages and "Superstars"," Working Papers 140, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  34. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June. [Downloadable!] (restricted)
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  35. Helpman, Elhanan, 1985. "Multinational Corporations and Trade Structure," Review of Economic Studies, Blackwell Publishing, vol. 52(3), pages 443-57, July. [Downloadable!] (restricted)
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  38. Rugman, Alan M, 1986. "New Theories of the Multinational Enterprise: An Assessment of Internalization Theory," Bulletin of Economic Research, Blackwell Publishing, vol. 38(2), pages 101-18, May.
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  41. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lorenzo Casaburi & Valeria Gattai, 2009. "Why FDI? An Empirical Assessment Based on Contractual Incompleteness and Dissipation of Intangible Assets," Working Papers 164, University of Milano-Bicocca, Department of Economics, revised Jul 2009. [Downloadable!]
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