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The Margins of Multinational Production and the Role of Intrafirm Trade

Author

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  • Alfonso Irarrazabal
  • Andreas Moxnes
  • Luca David Opromolla

Abstract

Multinational production (MP) can lead to large gains through international technology sharing. However, empirical evidence suggests that geography matters for MP: Affiliate sales fall in distance from the headquarters. We introduce intrafirm trade into a standard model of exports and MP and show that the model is consistent with firm-level and aggregate evidence. Using a maximum likelihood estimator, we find that intrafirm trade plays a crucial role in shaping the geography of MP. An implication of our work is that MP and exports are very similar activities. Consequently, shutting down MP leads to relatively small welfare losses.

Suggested Citation

  • Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2013. "The Margins of Multinational Production and the Role of Intrafirm Trade," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 74-126.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/669877
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    JEL classification:

    • F10 - International Economics - - Trade - - - General

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