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A quantitative approach to multinational production

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  • Ramondo, Natalia

Abstract

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.

Suggested Citation

  • Ramondo, Natalia, 2014. "A quantitative approach to multinational production," Journal of International Economics, Elsevier, vol. 93(1), pages 108-122.
  • Handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:108-122
    DOI: 10.1016/j.jinteco.2014.01.004
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