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Horizontally-integrated MNE and plant heterogeneity

In the paper we develop a monopolistically competitive general equilibrium model of horizontally-integrated multinational enterprise (MNE) with heterogeneous plants. We demonstrate that smaller productivity differences between domestic and foreign plants increase the level of multinational activity. We also show that the level of multinational activity is the most intensive between countries of the similar size. Finally, we show that the relative wage increases (decreases) with relative productivity of workers and the degree of product differentiation when the home country is smaller (bigger) compared to the foreign country.

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Article provided by National Bank of Poland, Economic Institute in its journal Bank i Kredyt.

Volume (Year): 44 (2013)
Issue (Month): 6 ()
Pages: 605-622

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Handle: RePEc:nbp:nbpbik:v:44:y:2013:i:6:p:605-622
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  1. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  2. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  3. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
  4. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  5. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-73, October.
  6. Andrzej Cieślik, 2008. "Multinational Firms, International Knowledge Flows, and Dual Labor Markets in Developing Economies," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 160-179, 02.
  7. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February.
  8. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  9. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  10. Andrzej Cieslik, 2012. "Multinational Enterprises, Foreign Knowledge Spillovers and Host Country Wages," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 7, pages 7-20.
  11. Panzar, John C & Willig, Robert D, 1977. "Economies of Scale in Multi-Output Production," The Quarterly Journal of Economics, MIT Press, vol. 91(3), pages 481-93, August.
  12. Markusen, James R. & Venables, Anthony J, 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers.
  13. Robert E. Lipsey, 2004. "Home- and Host-Country Effects of Foreign Direct Investment," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 333-382 National Bureau of Economic Research, Inc.
  14. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  15. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  16. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  17. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  18. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
  19. Krugman, Paul, 1990. "Multinational enterprise: The old and the new in history and theory," North American Review of Economics and Finance, Elsevier, vol. 1(2), pages 267-280.
  20. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
  21. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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