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Multinational Firms: Reconciling Theory and Evidence

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  • James R. Markusen
  • Keith E. Maskus

Abstract

An important component of Robert Lipsey's work has been his research on multinational firms, and his careful documentation of their behavior in terms of production and intra-firm trade. In this paper, we extend recent theory referred to as the knowledge-capital model', which simultaneously generates motives for both horizontal and vertical multinational production. We use this model to derive predictions about foreign affiliates' pattern of production for local markets versus production for exports as functions of country characteristics such as market sizes, size differences, and relative endowment differences. These predictions are then taken to data on affiliate production and trade. Results confirm several hypotheses. The ratio of production for export sales to production for local sale by affiliates of foreign multinationals depends negatively on market size, investment and trade costs in the host country, and positively on the relative skilled-labor abundance of the parent country (skilled-labor scarcity of the host country).

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7163.

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Date of creation: Jun 1999
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Publication status: published as James R. Markusen, Keith E. Maskus. "Multinational Firms: Reconciling Theory and Evidence," in Magnus Blomstrom and Linda S. Goldberg, editors, "Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey" University of Chicago Press (2001)
Handle: RePEc:nbr:nberwo:7163

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  1. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  2. Magnus Blomstrom & Robert E. Lipsey & Ksenia Kulchycky, 1988. "U.S. and Swedish Direct Investment and Exports," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 257-302 National Bureau of Economic Research, Inc.
  3. Robert E. Lipsey, 1988. "Changing Patterns of International Investment In and By the United States," NBER Working Papers 2240, National Bureau of Economic Research, Inc.
  4. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
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  6. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
  7. Wong, Kar-yiu, 1986. "Are international trade and factor mobility substitutes?," Journal of International Economics, Elsevier, vol. 21(1-2), pages 25-43, August.
  8. J. Peter Neary, 1995. "Factor Mobility and International Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 4-23, November.
  9. Bhagwati, Jagdish N. & Brecher, Richard A., 1980. "National welfare in an open economy in the presence of foreign-owned factors of production," Journal of International Economics, Elsevier, vol. 10(1), pages 103-115, February.
  10. Magnus Blomstrom & Robert E. Lipsey & Lennart Ohlsson, 1991. "What Do Rich Countries Trade with Each Other? R&D and the Composition of U.S. and Swedish Trade," NBER Working Papers 3140, National Bureau of Economic Research, Inc.
  11. Lipsey, Robert E. & Blomström, Magnus & Ramstetter, Eric, 1995. "Internationalized Production in World Output," Working Paper Series in Economics and Finance 80, Stockholm School of Economics.
  12. Blomstrom, Magnus & Lipsey, Robert E, 1989. "The Export Performance of U.S. and Swedish Multinationals," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 35(3), pages 245-64, September.
  13. Lipsey, Robert E & Weiss, Merle Yahr, 1981. "Foreign Production and Exports in Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 488-94, November.
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  16. 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.
  17. James R. Markusen & Lars E.O. Svensson, 1983. "Trade in Goods and Factors with International Differences in Technology," NBER Working Papers 1101, National Bureau of Economic Research, Inc.
  18. Karolina Ekholm,, . "Factor Endowments and the Pattern of Affiliate Production by Multinational Enterprises," Discussion Papers 97/19, University of Nottingham, CREDIT.
  19. Zhang, Kevin Honglin & Markusen, James R., 1999. "Vertical multinationals and host-country characteristics," Journal of Development Economics, Elsevier, vol. 59(2), pages 233-252, August.
  20. Kravis, Irving B & Lipsey, Robert E, 1992. "Sources of Competitiveness of the United States and of Its Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 193-201, May.
  21. Magnus Blomstrom & Irving B. Kravis & Robert E. Lipsey, 1988. "Multinational Firms and Manufactured Exports from Developing Countries," NBER Working Papers 2493, National Bureau of Economic Research, Inc.
  22. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, vol. 87(3), pages 447-65, June.
  23. James R. Melvin, 1969. "Increasing Returns to Scale as a Determinant of Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 2(3), pages 389-402, August.
  24. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
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