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Multinational Enterprises and New Trade Theory: Evidence for the Convergence Hypothesis

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  • Salvador Barrios
  • Holger Görg
  • Eric Strobl

Abstract

According to the 'convergence hypothesis' multinational companies will tend to displace national firms and trade as total market size increases and as countries converge in relative size, factor endowments, and production costs. Using a recent model developed by Markusen and Venables (1998) as a theoretical framework, we explicitly develop, and address the properties of, empirical measures to proxy displacement of national firms by multinationals. These measures are then used to test the convergence hypothesis for a panel of data of country pairs over the years 1985–1996. Our results based on aggregate country level data provide some empirical support for the convergence hypothesis. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Salvador Barrios & Holger Görg & Eric Strobl, 2003. "Multinational Enterprises and New Trade Theory: Evidence for the Convergence Hypothesis," Open Economies Review, Springer, vol. 14(4), pages 397-418, October.
  • Handle: RePEc:kap:openec:v:14:y:2003:i:4:p:397-418
    DOI: 10.1023/A:1025364827266
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    Cited by:

    1. Salvador Barrios & Holger Görg & Eric Strobl, 2003. "Multinational Enterprises and New Trade Theory: Evidence for the Convergence Hypothesis," Open Economies Review, Springer, vol. 14(4), pages 397-418, October.
    2. Görg, Holger & Greenaway, David, 2002. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Investment?," CEPR Discussion Papers 3485, C.E.P.R. Discussion Papers.
    3. Iader Giraldo & Fernando Jaramillo, 2018. "Productivity, Demand, and the Home Market Effect," Open Economies Review, Springer, vol. 29(3), pages 517-545, July.
    4. Peter Egger, 2008. "On the role of distance for outward FDI," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(2), pages 375-389, June.
    5. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
    6. Chionis, D., 2004. "Multinational Enterprises and Tobin´s q: The Implications for Foreign Direct Investment," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(2), pages 121-130.
    7. Henk Kox & Arjan Lejour, 2006. "The Effects of the Services Directive on Intra-eu Trade and fdi," Revue économique, Presses de Sciences-Po, vol. 57(4), pages 747-769.
    8. Erdey, László, 2004. "A működőtőke-áramlás a telephelyválasztás elméletének tükrében [The flow of operating capital in the light of the theory of location choice]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 472-494.
    9. Rosa Forte, 2004. "The relationship between foreign direct investment and international trade. Substitution or complementarity? A survey," FEP Working Papers 140, Universidade do Porto, Faculdade de Economia do Porto.
    10. Henk Kox & Arjan Lejour & Raymond Montizaan, 2004. "The free movement of services within the EU," CPB Document 69, CPB Netherlands Bureau for Economic Policy Analysis.

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    More about this item

    Keywords

    multinational enterprises; convergence hypothesis; new trade theory;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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