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Reputational Comparative Advantage and Multinational Enterprise

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  • Richard Chisik

    () (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

For a firm without a readily identifiable brand name, quality reputation may solely reflect the country of origin. In this paper we endogenize country-of-origin reputations and show that these selffulfilling reputations determine not only the average quality of a country’s exports but also the type of products in which a country specializes. Hence, the pattern of international trade can be determined by reputational comparative advantage. Specialization according to reputational comparative advantage can also establish the location of the host and the parent firm in a multinational enterprise. Furthermore, multinationals that internalize production in a single firm can eradicate a low reputation equilibrium and, therefore, can increase host-country welfare by a greater amount than under a licensing arrangement. Finally, this reputation effect can identify whether internalization, or licensing, is more likely to occur.

Suggested Citation

  • Richard Chisik, 2010. "Reputational Comparative Advantage and Multinational Enterprise," Working Papers 016, Ryerson University, Department of Economics.
  • Handle: RePEc:rye:wpaper:wp016
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    References listed on IDEAS

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    Cited by:

    1. Stephen DeLoach & Jayoti Das, 2008. "Resolving the paradox of social standards and export competitiveness," The Journal of International Trade & Economic Development, Taylor & Francis Journals, pages 467-483.

    More about this item

    Keywords

    Country-of-Origin; Quality Reputations; Multinational Enterprise; Internalization; Statistical Discrimination.;

    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
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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