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A quantitative approach to multinational production

  • Ramondo, Natalia

I examine new data on the number and revenues of foreign affiliates of multinational firms across a large number of country pairs. The data shed light on the behavior of the intensive and extensive margins of multinational production (MP). To capture the patterns observed in the data, I build and calibrate a multi-country general-equilibrium model of MP that combines a Lucas (1978) span-of-control with an Eaton and Kortum (2002) type model, and includes both fixed and variable costs of opening affiliates abroad. I use the calibrated model to calculate the gains that a country would experience from liberalizing access to foreign firms. Those calculations suggest that the welfare losses of closing up to foreign firms would be around 4%, while the gains of liberalizing access to foreign firms would be large, particularly if the variable – rather than the fixed – component of MP costs were lowered.

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

Volume (Year): 93 (2014)
Issue (Month): 1 ()
Pages: 108-122

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Handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:108-122
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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