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Multinational Entry and Exit, Technology Transfer, and International Business Cycles

Author

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  • Gautham Udupa

    (Centre for Advanced Financial Research and Learning (CAFRAL))

Abstract

I develop a general equilibrium model of trade and horizontal multinational production (MP) with firm heterogeneity, market access frictions including export and MP sunk costs, multinational parent-to-affiliate technology transfer, and capital. I find that pro-cyclical MP exit (i.e., MP extensive margin) plays an important role in increasing macroeconomic volatility and reducing international correlations. When calibrated to match US data, I approximate that at least 15% of the change between a no-MP model and the MP model can be attributed to MP extensive margin. Overall, the paper highlights the importance of firm extensive margin, in particular that of MP, in aggregate business cycle dynamics.

Suggested Citation

  • Gautham Udupa, 2024. "Multinational Entry and Exit, Technology Transfer, and International Business Cycles," Working Papers 022287, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022287
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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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