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Reputational Comparative Advantage and Multinational Enterprise

  • Richard Chisik

    ()

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

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.

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File URL: http://economics.ryerson.ca/workingpapers/wp016.pdf
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Paper provided by Ryerson University, Department of Economics in its series Working Papers with number 016.

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Length: 33 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:rye:wpaper:wp016
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