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Optimal Integration Strategies for the Multinational Firm

  • Gene M. Grossman
  • Elhanan Helpman
  • Adam Szeidl

We examine integration strategies of multinational firms that face a rich array of choices of international organization. Each firm in an industry must provide headquarter services from its home country, produce intermediate inputs, and assemble the intermediate goods into final products. Both production of intermediate goods and assembly can be performed at home, in another “Northern” country, in the low-wage “South,” or in several of these locations. We study the equilibrium choices of firms that differ in productivity (and thus size), focusing on the role of industry characteristics such as the fixed costs of foreign subsidiaries, the cost of transporting intermediate and final goods,and the share of the consumer market that resides in the South in determining optimal integration strategies.

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File URL: http://www.economics.harvard.edu/pub/hier/2003/HIER2024.pdf
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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 2024.

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Date of creation: 2003
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Handle: RePEc:fth:harver:2024
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  1. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  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. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  4. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
  5. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2003. "Optimal Integration Strategies for the Multinational Firm," Harvard Institute of Economic Research Working Papers 2024, Harvard - Institute of Economic Research.
  6. Gene M. Grossman & Elhanan Helpman, 2002. "Managerial Incentives and the International Organization of Production," Working Papers 147, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  7. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, March.
  8. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," Harvard Institute of Economic Research Working Papers 1998, Harvard - Institute of Economic Research.
  9. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy," Working Papers 149, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  10. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  11. Gene M. Grossman & Elhanan Helpman, 2003. "Outsourcing Versus FDI in Industry Equilibrium," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 317-327, 04/05.
  12. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December.
  13. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  14. Karolina Ekholm & Rikard Forslid & James Markusen, 2003. "Export-Platform Foreign Direct Investment," NBER Working Papers 9517, National Bureau of Economic Research, Inc.
  15. Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, vol. 60(2), pages 293-314, August.
  16. Michael P. Keane & Susan E. Feinberg, 2006. "Accounting for the Growth of MNC-Based Trade Using a Structural Model of U.S. MNCs," American Economic Review, American Economic Association, vol. 96(5), pages 1515-1558, December.
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