Welfare and Trade Margins with Multinational Production

We examine how the presence of heterogenous multinational firms matters for the aggregate welfare implications of trade by comparing models with only export, intra-firm activity, and pure multination production. We show that extensive mar- gins depend on both supply and demand parameters, and are not longer constant. We use a theoretical comparative static to isolate the additional component of wel- fare associated with intra- rms trade and to show that models of multinational production have new aggregate welfare implications. The model is then calibrated to analyze counterfactual scenarios. We find that truncation through multinational production is associated with the largest welfare gains from liberalization.