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Multinational Activity in a Macroeconomic Model of the Small Open Economy

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  • Otto, Alkis Henri

Abstract

We study the effects of FDI and increasing multinational activity utilizing a macroeconomic two-sector model of the small open economy with flexible exchange rates and perfect capital mobility. The focus is on horizontal greenfield investment and its impact on production, exchange rates, trade, and welfare. In the host country, an increase in multinational activity harms the established industries. Nevertheless it increases welfare. In the home country, an increase in multinational activity lowers domestic output of the established industries too and, thereby, decreases welfare. --

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File URL: http://econstor.eu/bitstream/10419/19278/1/306.pdf
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Bibliographic Info

Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 306.

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Date of creation: 2004
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Handle: RePEc:zbw:hwwadp:26242

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Web page: http://www.econstor.eu/handle/10419/20
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Related research

Keywords: Foreign Direct Investment; Multinational activity; Welfare effects; Macroeconomic effects;

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  1. 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.
  2. Robert E. Lipsey, 2000. "The Role of Foreign Direct Investment in International Capital Flows," NBER Working Papers 7094, National Bureau of Economic Research, Inc.
  3. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  4. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
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