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The theory of endowment, intra-industry and multi-national trade

In: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models

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  • James R. Markusen
  • Anthony J. Venables

Abstract

We develop a monopolistic-competition model of international trade which includes positive trade costs and endogenous multinational firms. We demonstrate how the presence of trade costs changes the pattern of trade, creates incentives for factor mobility which may lead to agglomeration of activity in a single country, and may lead to multinational firms. The mix of national and multinational firms that operate in equilibrium depends on technology and on the division of the world endowment between countries. Multinationals are more likely to exist the more similar are countries in both relative and absolute endowments, a result consistent with empirical evidence. The presence of multinationals creates trade in headquarters’ services, alters the incentives for factor mobility, and reduces the tendencies towards agglomeration.

Suggested Citation

  • James R. Markusen & Anthony J. Venables, 2021. "The theory of endowment, intra-industry and multi-national trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 4, pages 69-94, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811222962_0004
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    References listed on IDEAS

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    8. James R. MARKUSEN, 2021. "Factor Movements And Commodity Trade As Complements," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 15, pages 325-340, World Scientific Publishing Co. Pte. Ltd..
    9. James R. Markusen & James R. Melvin, 1981. "Trade, Factor Prices, and the Gains from Trade with Increasing Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 450-469, August.
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    More about this item

    Keywords

    Multinational Firms; Horizontal Multinationals; Vertical Multinationals; Internalization; Vertical Integration; Outsourcing; Foreign Affiliates; Per-Capita Income; Non-homothetic Preferences; Income Elasticity of Demand; Missing Trade Puzzle; Skill Premium Puzzle; Pro-competitive Gains From Trade; Complements; Externalities;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F00 - International Economics - - General - - - General
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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