IDEAS home Printed from
   My bibliography  Save this paper

Size, Geography, and Multinational Production


  • Natalia Ramondo

    () (Economics University of Chicago)


This paper analyzes the cross-country allocation and volume of multinational production, quantifies its barriers, and assesses its impact on welfare. From the patterns of multinational production across countries, three facts stand out: a small fraction of country-pairs engages in multinational activities with each other; geography remains a significant impediment to the expansion of such activities; and country size matters. I introduce multinational production in a competitive, multi-country, general equilibrium model with bilateral fixed costs that qualitatively reproduces these facts. The model delivers an equation for sales of foreign affiliates that predicts zero as well as positive volumes between country-pairs, and where positive flows are related to technology, size, and barriers. Using data on bilateral sales of affiliates, for OECD and non-OECD countries, I estimate barriers to multinational activities using an indirect inference procedure. Estimates suggest that distance remains a significant impediment, with countries twice as distant facing a 50% higher cost; policy variables, such as preferential treaties and taxes, have small effects. Finally, welfare calculations show that there are large, unrealized gains of removing bilateral barriers to multinational production

Suggested Citation

  • Natalia Ramondo, 2006. "Size, Geography, and Multinational Production," 2006 Meeting Papers 472, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:472

    Download full text from publisher

    File URL:
    File Function: main text
    Download Restriction: no

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Assaf Razin & Yona Rubinstein & Efraim Sadka, 2003. "Which Countries Export FDI, and How Much?," NBER Working Papers 10145, National Bureau of Economic Research, Inc.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    4. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    Full references (including those not matched with items on IDEAS)

    More about this item


    multinaional firms; Foreign Direct Investment; gravity;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed006:472. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.