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Multinational Activity in a Macroeconomic Model of the Small Open Economy

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  • Otto, Alkis Henri

Abstract

We study the effects of FDI and increasing multinational activity utilizing a macroeconomic two-sector model of the small open economy with flexible exchange rates and perfect capital mobility. The focus is on horizontal greenfield investment and its impact on production, exchange rates, trade, and welfare. In the host country, an increase in multinational activity harms the established industries. Nevertheless it increases welfare. In the home country, an increase in multinational activity lowers domestic output of the established industries too and, thereby, decreases welfare.

Suggested Citation

  • Otto, Alkis Henri, 2004. "Multinational Activity in a Macroeconomic Model of the Small Open Economy," HWWA Discussion Papers 306, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:26242
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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..
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    More about this item

    Keywords

    Foreign Direct Investment; Multinational activity; Welfare effects; Macroeconomic effects;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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