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General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence

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Author Info
James R. Markusen
Keith E. Maskus

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Abstract

Beginning in the early 1980s, theoretical analyses have incorporated the multinational firm into the microeconomic, general-equilibrium theory of international trade. Recent advances indicate how vertical and horizontal multinationals arise endogenously as determined by country characteristics, including relative size and relative endowment differences, and trade and investment costs. Results also characterize the relationship between foreign affiliate production and international trade in goods and services. In this paper, we survey some of this recent work, and note the testable predictions generated in the theory. In the second part of the paper, we examine empirical results that relate foreign affiliate production to country characteristics and trade/investment cost factors. We also review findings from analyses of the pattern of substitutability or complementarity between trade and foreign production.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8334.

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Date of creation: Jun 2001
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Handle: RePEc:nbr:nberwo:8334

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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