The Vertical Multinational Enterprise and International Trade
By explicitly modeling distortion in the intermediate goods sector, I develop a model of an endogenous vertical multinational enterprise. Firms invest abroad to lower cost of multi-stage production. The implications for international trade and investment differ markedly from the conventional wisdom of multinationals. Particularly, intra-firm trade in intermediates implies vertical investment complements rather than substitutes for trade. The decision to become a multinational depends on the level of foreign factor prices, nature of competition with foreign suppliers, transport, tariff, and subsidiary plant costs. Marginal change in tariff may result in welfare jumps as firm configuration shifts.
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NBER Working Papers
3023, National Bureau of Economic Research, Inc.
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- Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
- Horstmann, Ignatius J. & Markusen, James R., 1992. "Endogenous market structures in international trade (natura facit saltum)," Journal of International Economics, Elsevier, vol. 32(1-2), pages 109-129, February.
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