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The role of multinational production in a risky environment

  • Ramondo, Natalia
  • Rappoport, Veronica

This paper explores the aggregate consequences of Foreign Direct Investment (FDI) on the opportunities for risk diversification available to consumers. The crucial difference between FDI and other international financial flows is that the former involves technology flows across countries. We present a model where firm-embedded productivity can be transferred costly across countries through the activity of multinational firms. We find that risk patterns affect multinationals' location decisions and, in turn, these decisions change the scope for international risk diversification even in a world with complete financial markets.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 81 (2010)
Issue (Month): 2 (July)
Pages: 240-252

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Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:240-252
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Edward Prescott & Ellen McGrattan, 2008. "Openness, Technology Capital, and Development," 2008 Meeting Papers 111, Society for Economic Dynamics.
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  11. Ariel T. Burstein & Alexander Monge-Naranjo, 2009. "Foreign Know-How, Firm Control, and the Income of Developing Countries-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 149-195, February.
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  13. Chiara Criscuolo & Ralf Martin, 2005. "Multinationals and US Productivity Leadership: Evidence from Great Britain," CEP Discussion Papers dp0672, Centre for Economic Performance, LSE.
  14. Pol Antràs, 2003. "Firms, Contracts, And Trade Structure," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1375-1418, November.
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  19. Bacchetta, Philippe & van Wincoop, Eric, 1997. "Trade in Nominal Assets and Net International Capital Flows," CEPR Discussion Papers 1569, C.E.P.R. Discussion Papers.
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