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Globalization of the World Economy: What Happened in 1985?

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  • Kleinert, Jörn

Abstract

This paper brings forward a three-country model to analyze the internationalization process in the age of globalization. It is shown that investment of one company increases not only the incentive to invest in another country for every national competitor but for third country's companies as well. That results from the adjustment of the host country's companies which react to their shrinking market share by reducing output and raising the price of their goods. Some host country's companies exit the market. The results are used to explain the surge of foreign direct investment since the mid-1980s.

Suggested Citation

  • Kleinert, Jörn, 2000. "Globalization of the World Economy: What Happened in 1985?," Kiel Working Papers 969, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:969
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    File URL: https://www.econstor.eu/bitstream/10419/17906/1/kap969.pdf
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    References listed on IDEAS

    as
    1. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    2. James R. Markusen & Anthony J. Venables, 2021. "Multinational firms and the new trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 3, pages 47-67, World Scientific Publishing Co. Pte. Ltd..
    3. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
    4. John H. Dunning, 1977. "Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach," Palgrave Macmillan Books, in: Bertil Ohlin & Per-Ove Hesselborn & Per Magnus Wijkman (ed.), The International Allocation of Economic Activity, chapter 12, pages 395-418, Palgrave Macmillan.
    5. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    6. Kleinert, Jörn, 1998. "The emergence of multinational enterprises: Simulation results," Kiel Working Papers 900, Kiel Institute for the World Economy (IfW Kiel).
    7. Jose Campa & Linda S. Goldberg, 1997. "The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries," NBER Working Papers 5919, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    general equilibrium; globalization; multinational enterprises;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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

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