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Adapting the Knowledge‐capital Model of the Multinational Enterprise to Trade and Investment in Business Services

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  • James R. Markusen
  • Bridget Strand

Abstract

At some conceptual level, trade in goods and services are not that much different. However, the speed at which trade and foreign investment in services is growing, along with the fact that the barriers to these activities are quite different from those for trade in goods, prompts us to take a more careful look. The paper begins with a general discussion about the various policies and technological constraints that impact foreign trade and the establishment of foreign commercial presence in intermediate business services. We then discuss which characteristics an accurate modelling approach must capture. Following that, we develop a model that allows for different regimes of trade and/or foreign affiliate production in services using Markusen's knowledge‐capital model. Simulations show that the pattern of service firm headquarters and office locations can differ considerably depending on whether it is trade, investment, or both that are either liberalised or become technologically feasible. Our results find that the welfare and factor‐price consequences are quite similar across the different scenarios.

Suggested Citation

  • James R. Markusen & Bridget Strand, 2009. "Adapting the Knowledge‐capital Model of the Multinational Enterprise to Trade and Investment in Business Services," The World Economy, Wiley Blackwell, vol. 32(1), pages 6-29, January.
  • Handle: RePEc:bla:worlde:v:32:y:2009:i:1:p:6-29
    DOI: 10.1111/j.1467-9701.2009.01155.x
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    References listed on IDEAS

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    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, September.
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    Cited by:

    1. Peter Egger & Valeria Merlo & Georg Wamser, 2017. "Cross-country Services Versus Manufacturing Activity of Multinational Firms in Response to Services Versus Goods Policy," The World Economy, Wiley Blackwell, vol. 40(3), pages 490-498, March.
    2. Andre Jungmittag & Robert Marschinski, 2020. "Service Trade Restrictiveness and Foreign Direct Investment - Evidence from Greenfield FDI in Business Services," JRC Working Papers JRC122116, Joint Research Centre (Seville site).
    3. Andre Jungmittag, 2019. "Service trade restrictiveness and internationalisation of retail trade," International Economics and Economic Policy, Springer, vol. 16(2), pages 293-333, April.
    4. Łukasz Matuszczak, 2019. "What are the determinants of international trade in services? Evidence from firm-level data for Poland," Working Papers 2019-20, Faculty of Economic Sciences, University of Warsaw.
    5. Elisabeth Christen & Joseph Francois, 2010. "Modes of Delivery in Services," Economics working papers 2010-08, Department of Economics, Johannes Kepler University Linz, Austria.
    6. Balistreri, Edward J. & Tarr, David G., 2020. "Comparison of deep integration in the Melitz, Krugman and Armington models: The case of The Philippines in RCEP," Economic Modelling, Elsevier, vol. 85(C), pages 255-271.
    7. Laura Abramovsky, 2015. "Global engagement in R&D: a portrait of biopharmaceutical patenting firms," IFS Working Papers W15/18, Institute for Fiscal Studies.
    8. Breinlich, Holger & Criscuolo, Chiara, 2011. "International trade in services: A portrait of importers and exporters," Journal of International Economics, Elsevier, vol. 84(2), pages 188-206, July.
    9. Andrzej Cieślik, 2017. "Determinants of MNE Activity in Poland: The Case of Firms from EU-15," Entrepreneurial Business and Economics Review, Centre for Strategic and International Entrepreneurship at the Cracow University of Economics., vol. 5(1), pages 151-167.
    10. Bala Ramasamy & Matthew Yeung, 2010. "The Determinants of Foreign Direct Investment in Services," The World Economy, Wiley Blackwell, vol. 33(4), pages 573-596, April.
    11. Andrzej Cieślik, 2020. "Determinants of foreign direct investment from OECD countries in Poland," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(1), pages 9-25, March.
    12. Andrzej Cieślik, 2020. "What attracts multinational enterprises from the new EU member states to Poland?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 253-269, June.

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