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The role of multinational production in a risky environment

Listed author(s):
  • 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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File URL: http://www.sciencedirect.com/science/article/pii/S0022-1996(10)00021-8
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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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  16. repec:hrv:faseco:4784029 is not listed on IDEAS
  17. Albuquerque, Rui, 2003. "The composition of international capital flows: risk sharing through foreign direct investment," Journal of International Economics, Elsevier, vol. 61(2), pages 353-383, December.
  18. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-544, September.
  19. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-775, August.
  20. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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