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Discriminating Among Alternative Theories of the Multinational Enterprise

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  • James R. Markusen
  • Keith E. Maskus

Abstract

Recent theoretical developments have incorporated endogenous multinational firms into the general-equilibrium model of trade. One simple taxonomy separates the theory into vertical' models in which firms geographically separate activities by stages of production and horizontal' models of multi-plant firms which duplicate roughly the same activities in many countries. We refer to a hybrid of these two as the 'knowledge capital model'. In this paper, we nest these three models within an unrestricted model. Econometric tests give strong support to the horizontal model and overwhelming reject the vertical model.

Suggested Citation

  • James R. Markusen & Keith E. Maskus, 1999. "Discriminating Among Alternative Theories of the Multinational Enterprise," NBER Working Papers 7164, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7164
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    References listed on IDEAS

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    1. James R. MARKUSEN, 2021. "Multinationals, Multi-Plant Economies, And The Gains From Trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 1, pages 3-24, World Scientific Publishing Co. Pte. Ltd..
    2. Karolina Ekholm,, "undated". "Factor Endowments and the Pattern of Affiliate Production by Multinational Enterprises," Discussion Papers 97/19, University of Nottingham, CREDIT.
    3. 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.
    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 520-544, September.
    5. David L. Carr & James R. Markusen & Keith E. Maskus, 2021. "Estimating The Knowledge-Capital Model of the Multinational Enterprise," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 5, pages 95-110, World Scientific Publishing Co. Pte. Ltd..
    6. James R. Markusen & Anthony J. Venables, 2021. "Multinational firms and the new trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 3, pages 47-67, World Scientific Publishing Co. Pte. Ltd..
    7. S. Lael Brainard, 1993. "An Empirical Assessment of the Factor Proportions Explanation of Multi-National Sales," NBER Working Papers 4583, National Bureau of Economic Research, Inc.
    8. Ekholm, Karolina, 1998. "Headquarter Services and Revealed Factor Abundance," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 545-553, November.
    9. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 435-451, November.
    10. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    11. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-121, February.
    12. James R. Markusen & Keith E. Maskus, 2001. "Multinational Firms: Reconciling Theory and Evidence," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 71-98, National Bureau of Economic Research, Inc.
    13. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
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    More about this item

    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

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