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Global Production with Export Platforms

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  • Felix Tintelnot

Abstract

Most international commerce is carried out by multinational firms, which use their foreign affiliates both to serve the market of the host country and to export to other markets outside the host country. In this paper, I examine the determinants of multinational firms' location and production decisions and the welfare implications of multinational production. The few existing quantitative general equilibrium models that incorporate multinational firms achieve tractability by assuming away export platforms – i.e. they do not allow foreign affiliates of multinationals to export – or by ignoring fixed costs associated with foreign investment. I develop a quantifiable multi-country general equilibrium model, which tractably handles multinational firms that engage in export platform sales and that face fixed costs of foreign investment. I first estimate the model using German firm-level data to uncover the size and nature of costs of multinational enterprise and show that the fixed costs of foreign investment are large. Second, I calibrate the model to data on trade and multinational production for twelve European and North American countries. Counterfactual analysis reveals that multinationals play an important role in transmitting technological improvements to foreign countries and that the pending Canada-EU trade and investment agreement could divert a sizable fraction of the production of EU multinationals from the US to Canada.

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  • Felix Tintelnot, 2016. "Global Production with Export Platforms," NBER Working Papers 22236, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22236
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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