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Multinational Firms, Technology Diffusion and Trade

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  • Wilfred J. Ethier
  • James R. Markusen

Abstract

Empirical evidence indicates a close association between multinational firms and knowledge capital, a public good within the firm. We model a firm which wishes to exploit its knowledge capital abroad, but whose workers learn all the knowledge necessary for production and can defect and produce the good themselves. The home firm must then choose between costly exporting and the possible dissipation of its knowledge capital by producing abroad. The paper examines the choice between exporting, licensing, and acquiring a subsidiary in this environment. We analyze the cost and technology parameters that support the alternative modes of serving the foreign market, and we describe the international equilibrium that jointly determines the pattern of specialization and the market mode.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3825.

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Date of creation: Aug 1991
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Publication status: published as Journal of International Economics, vol.41, 1996, pp. 1-28.
Handle: RePEc:nbr:nberwo:3825

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  1. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  2. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(4), pages 805-33, November.
  3. Nicholas, Stephen, 1983. "Agency Contracts, Institutional Modes, and the Transition to Foreign Direct Investment by British Manufacturing Multinationals Before 1939," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 43(03), pages 675-686, September.
  4. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  5. Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, Elsevier, vol. 32(1-2), pages 109-129, February.
  6. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, Elsevier, vol. 16(3-4), pages 205-226, May.
  7. Ignatius Horstmann & James R. Markusen, 1987. "Licensing versus Direct Investment: A Model of Internalization by the Multinational Enterprise," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 20(3), pages 464-81, August.
  8. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 389-405, June.
  9. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  10. John Dunning, 1981. "Explaining the international direct investment position of countries: Towards a dynamic or developmental approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 117(1), pages 30-64, March.
  11. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February.
  12. Wilson, Robert W, 1977. "The Effect of Technological Environment and Product Rivalry on R&D Effort and Licensing of Inventions," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 171-78, May.
  13. Ethier, Wilfred, 1979. "Internationally decreasing costs and world trade," Journal of International Economics, Elsevier, Elsevier, vol. 9(1), pages 1-24, February.
  14. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(2), pages 169-189, Spring.
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