What we term the firm includes three principal assumptions. First, services of knowledge-based and knowledge-generating activities, such as R&D, can be geographically separated from production and supplied to production facilities at low cost. Second, these knowledge-intensive activities are skilled-labor intensive relative to production. These characteristics give rise to vertical multinationals, which fragment production and locate activities according to factor prices and market size. Third, knowledge-based services have a (partial) joint-input characteristic that they can be supplied to additional production facilities at low cost. This characteristic gives rise to horizontal multinationals, which produce the same goods or services in multiple locations. In this paper, we note how this model predicts relationships between affiliate sales and country characteristics. We then subject these predictions to empirical tests.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
6773.
Length: Date of creation: Oct 1998 Date of revision: Publication status: published as Carr, David L., James R. Markusen and Keith E. Maskus. "Estimating The Knowledge-Capital Model Of The Multinational Enterprise," American Economic Review, 2001, v91(3,Jun), 693-708. Handle: RePEc:nbr:nberwo:6773
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Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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