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Size, Geography, and Multinational Production

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  • Natalia Ramondo

    ()
    (Economics University of Chicago)

Abstract

This paper analyzes the cross-country allocation and volume of multinational production, quantifies its barriers, and assesses its impact on welfare. From the patterns of multinational production across countries, three facts stand out: a small fraction of country-pairs engages in multinational activities with each other; geography remains a significant impediment to the expansion of such activities; and country size matters. I introduce multinational production in a competitive, multi-country, general equilibrium model with bilateral fixed costs that qualitatively reproduces these facts. The model delivers an equation for sales of foreign affiliates that predicts zero as well as positive volumes between country-pairs, and where positive flows are related to technology, size, and barriers. Using data on bilateral sales of affiliates, for OECD and non-OECD countries, I estimate barriers to multinational activities using an indirect inference procedure. Estimates suggest that distance remains a significant impediment, with countries twice as distant facing a 50% higher cost; policy variables, such as preferential treaties and taxes, have small effects. Finally, welfare calculations show that there are large, unrealized gains of removing bilateral barriers to multinational production

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 472.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:472

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Keywords: multinaional firms; Foreign Direct Investment; gravity;

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  1. Natalia Ramondo, 2009. "Foreign Plants and Industry Productivity: Evidence from Chile," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 789-809, December.
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Cited by:
  1. Jeff Thurk, 2008. "To Copy or not to Copy: Intellectual Property Rights, Imitation, and Trade," 2008 Meeting Papers 923, Society for Economic Dynamics.
  2. Penn State University & Alexander Monge-Naranjo, 2011. "Foreign Firms and the Diffusion of Know-How," 2011 Meeting Papers 1324, Society for Economic Dynamics.
  3. Kunal Dasgupta, 2009. "Learning, Knowledge Diffusion and the Gains from Globalization," Working Papers tecipa-364, University of Toronto, Department of Economics.
  4. Davin Chor, 2008. "Unpacking Sources of Comparative Advantage: A Quantitative Approach," Working Papers 13-2008, Singapore Management University, School of Economics.
  5. Nicolas Coeurdacier & Roberto A. de Santis & Antonin Aviat, 2009. "Cross-border mergers and acquisitions and European integration," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  6. Natalia Ramondo & Andrés Rodríguez-Clare, 2009. "Trade, Multinational Production, and the Gains from Openness," NBER Working Papers 15604, National Bureau of Economic Research, Inc.
  7. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Organizing Offshoring: Middle Managers and Communication Costs," NBER Working Papers 12196, National Bureau of Economic Research, Inc.
  8. Andres Rodriguez-Clare, 2007. "Trade, Diffusion and the Gains from Openness," 2007 Meeting Papers 126, Society for Economic Dynamics.
  9. VEronica Rappoport & Natalia Ramondo, 2009. "The Role of Multinational Production in a Risky Environment," 2009 Meeting Papers 1106, Society for Economic Dynamics.
  10. Ariel Burstein & Alexander Monge-Naranjo, 2007. "Foreign Know-How, Firm Control, and the Income of Developing Countries," NBER Working Papers 13073, National Bureau of Economic Research, Inc.
  11. Jeff Thurk, 2012. "Trade Costs, Innovation, and the Gains from Trade," 2012 Meeting Papers 141, Society for Economic Dynamics.
  12. Alexander Monge-Naranjo, 2012. "Foreign firms and the diffusion of knowledge," Working Papers 2012-055, Federal Reserve Bank of St. Louis.
  13. Coeurdacier, Nicolas & De Santis, Roberto A. & Aviat, Antonin, 2009. "Cross-Border Mergers and acquisitions: Financial and institutional forces," Working Paper Series 1018, European Central Bank.
  14. Jeff Thurk & Antoine Gervais, 2011. "Product Quality, R&D Investment, and International Trade," 2011 Meeting Papers 1335, Society for Economic Dynamics.

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