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Simulating heterogeneous multinational firms

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  • Arita, Shawn
  • Tanaka, Kiyoyasu

Abstract

This paper develops a micro-simulation framework for multinational entry and sales activities across countries. The model is based on Eaton, Kortum, and Kramarz's (2010) quantitative trade model adapted towards multinational production. Using micro data on Japanese manufacturing firms, we first stylize the empirical regularities of multinational entry and sales activity and estimate the model's structural parameters with simulated method of moments. We then demonstrate that our adapted model is able to replicate important dimensions of the in-sample moments conditioned in our estimation strategy. Importantly, it is able to replicate activity under an economic period with a far different level of FDI barriers than was conditioned upon in our estimation sample. Overall, our research highlights the richness of the simulation framework for performing counterfactual analysis of various FDI policies.

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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 296.

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Date of creation: Apr 2011
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Publication status: Published in IDE Discussion Paper. No. 296. 2011.4
Handle: RePEc:jet:dpaper:dpaper296

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Related research

Keywords: International business enterprises; Foreign investments; Multinational firms; FDI; Firm heterogeneity; Simulation; Model validation;

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References

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  1. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2003. "Optimal Integration Strategies for the Multinational Firm," Working Papers 142, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  2. TODO Yasuyuki, 2009. "Quantitative Evaluation of Determinants of Export and FDI: Firm-level evidence from Japan," Discussion papers 09019, Research Institute of Economy, Trade and Industry (RIETI).
  3. di Giovanni, Julian & Levchenko, Andrei A. & Rancière, Romain, 2010. "Power Laws in Firm Size and Openness to Trade: Measurement and Implications," CEPR Discussion Papers 7773, C.E.P.R. Discussion Papers.
  4. Michael P. Keane & Kenneth I. Wolpin, 2007. "Exploring The Usefulness Of A Nonrandom Holdout Sample For Model Validation: Welfare Effects On Female Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(4), pages 1351-1378, November.
  5. Stefania Garetto, 2008. "Input Sourcing and Multinational Production," 2008 Meeting Papers 122, Society for Economic Dynamics.
  6. Chen, Maggie Xiaoyang & Moore, Michael, 2009. "Location decision of heterogeneous multinational firms," MPRA Paper 33482, University Library of Munich, Germany.
  7. Eiichi Tomiura, 2005. "Foreign Outsourcing, Exporting, and FDI: A Productivity Comparison at the Firm Level," Discussion Paper Series 168, Research Institute for Economics & Business Administration, Kobe University.
  8. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  9. Keane, Michael P., 2010. "Structural vs. atheoretic approaches to econometrics," Journal of Econometrics, Elsevier, vol. 156(1), pages 3-20, May.
  10. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  11. Sourafel Girma & Richard Kneller & Mauro Pisu, 2005. "Exports versus FDI: An Empirical Test," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 193-218, July.
  12. Natalia Ramondo & Andr�s Rodr�guez-Clare, 2013. "Trade, Multinational Production, and the Gains from Openness," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 273 - 322.
  13. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  14. Andrei A. Levchenko & Julian di Giovanni & Romain Ranciere, 2010. "Power Laws in Firm Size and Openness to Trade," IMF Working Papers 10/109, International Monetary Fund.
  15. KANG, Kichun, 2008. "How much have been the export products changed from homogeneous to differentiated? Evidence from China, Japan, and Korea," China Economic Review, Elsevier, vol. 19(2), pages 128-137, June.
  16. Michael P. Keane & Susan E. Feinberg, 2006. "Accounting for the Growth of MNC-Based Trade Using a Structural Model of U.S. MNCs," American Economic Review, American Economic Association, vol. 96(5), pages 1515-1558, December.
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Cited by:
  1. Shawn ARITA & TANAKA Kiyoyasu, 2012. "Heterogeneous Multinational Firms and Productivity Gains from Falling FDI Barriers," Discussion papers 12010, Research Institute of Economy, Trade and Industry (RIETI).

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