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Migration of Firms, Home Bias and the Geographical Distribution of Growth

  • Gilad Aharonovitz
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    Foreign investment and the activity of foreign firms can have a substantial effect on an economy. This study examines the short run and long run effects of the movement of locally owned firms from a developed country to an undeveloped country on the output and growth rate of each in the presence of home bias. The paper analyzes the direction of movement of firms over time, firm ownership, GDP, GNP, wages and long run growth rates using a model in which the source of growth is the increase in the number of firms (which produce with decreasing marginal productivity). Various government policies towards the entry of foreign firms are examined and it is found that for the undeveloped country harsher policies towards entering firms lead to better results in the long run. Counter-policies are briefly discussed.

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    File URL: http://degit.sam.sdu.dk/papers/degit_11/C011_038.pdf
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    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c011_038.

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    Length: 32 pages
    Date of creation: Jun 2006
    Date of revision:
    Handle: RePEc:deg:conpap:c011_038
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    1. Grossman, G.M. & Helpman, E., 2002. "Outsourcing in a Global Economy," Papers 218, Princeton, Woodrow Wilson School - Public and International Affairs.
    2. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2003. "Optimal Integration Strategies for the Multinational Firm," Working Papers 142, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
    3. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
    4. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
    5. Shang-Jin Wei, 2000. "Local Corruption and Global Capital Flows," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(2), pages 303-354.
    6. Maurice Obstfeld., 1998. "The Global Capital Market: Benefactor or Menace?," Center for International and Development Economics Research (CIDER) Working Papers C98-098, University of California at Berkeley.
    7. Pol Antras & Elhanan Helpman, 2004. "Global Sourcing," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 552-580, June.
    8. Itay Goldstein & Assaf Razin, 2005. "Foreign Direct Investment vs. Foreiegn Portfolio Investment," NBER Working Papers 11047, National Bureau of Economic Research, Inc.
    9. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    10. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 729-761, May.
    11. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
    12. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
    13. repec:hrv:faseco:4784029 is not listed on IDEAS
    14. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    15. 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.
    16. Brezis, Elise S & Krugman, Paul R & Tsiddon, Daniel, 1993. "Leapfrogging in International Competition: A Theory of Cycles in National Technological Leadership," American Economic Review, American Economic Association, vol. 83(5), pages 1211-19, December.
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