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Interdependence in Multinational Production Networks

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  • Chen, Maggie

Abstract

Most multinational firms today operate multilateral production networks. Most existing empirical analyses, however, have focused on firms' choice between producing at home and investing overseas. This paper uses detailed French multinational subsidiary data to examine the effect of existing production networks on multinationals' entry decisions. The paper finds strong horizontal and vertical interdependence across multinationals' foreign production locations, but little interdependence between home and foreign production when third-country effects are taken into account. This result constitutes a sharp contrast to the conventional emphasis, and highlights the importance of investigating foreign direct investment in the context of multinational production networks.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28485.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:28485

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Keywords: multinational firm; production network; interdependence; entry decision; trade cost; input-output linkage;

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  1. Jim Markusen & Caroline Ekholm, Rikard Forslid, 2005. "Export-Platform Foreign Direct Investment," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp050, IIIS.
  2. Krugman, Paul & Venables, Anthony J., 1993. "Integration, Specialization and Adjustment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 886, C.E.P.R. Discussion Papers.
  3. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 85(3), pages 726-734, August.
  4. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2003. "Vertical Production Networks in Multinational Firms," NBER Working Papers, National Bureau of Economic Research, Inc 9723, National Bureau of Economic Research, Inc.
  5. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers, National Bureau of Economic Research, Inc 6773, National Bureau of Economic Research, Inc.
  6. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2005. "Estimating Models of Complex FDI: Are There Third-Country Effects?," Center for Policy Research Working Papers, Center for Policy Research, Maxwell School, Syracuse University 73, Center for Policy Research, Maxwell School, Syracuse University.
  7. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," 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. 37(2), pages 341-59, May.
  8. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1341, C.E.P.R. Discussion Papers.
  9. Head, Charles Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3455, C.E.P.R. Discussion Papers.
  10. Diego Puga & Anthony J. Venables, 1995. "Preferential Trading Arrangements and Industrial Location," CEP Discussion Papers, Centre for Economic Performance, LSE dp0267, Centre for Economic Performance, LSE.
  11. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, American Economic Association, vol. 99(5), pages 2096-2119, December.
  12. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers, National Bureau of Economic Research, Inc 11299, National Bureau of Economic Research, Inc.
  13. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2004. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," NBER Working Papers, National Bureau of Economic Research, Inc 10939, National Bureau of Economic Research, Inc.
  14. Maggie X. Chen, 2008. "Regional Economic Integration and Geographic Concentration of Multinational Firms," Working Papers, The George Washington University, Institute for International Economic Policy 2009-07, The George Washington University, Institute for International Economic Policy.
  15. Massimo Motta & George Norman, 1993. "Does economic integration cause foreign direct investment?," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 28, Department of Economics and Business, Universitat Pompeu Fabra.
  16. 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.
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Cited by:
  1. Debaere, Peter & Lee, Hongshik & Lee, Joonhyung, 2013. "Language, ethnicity and intrafirm trade," Journal of Development Economics, Elsevier, Elsevier, vol. 103(C), pages 244-253.

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